I find it ironic that you have problems with my explanation, and then proceed to indicate that you got the main point.
Your reason B for less modular OS designs was exactly my point. Less modular designs were feasible on the hardware before a more modular design would be. Once more modular designs became feasible, it was only a question of time until one emerged as a standard and then won due to advantages in cost, configurability, and maintainability. But there was a window where non-modular solutions made sense.
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