I guess it depends on the servers. I'm in academic/research computing and single-user systems are the anomaly. Part of it is having access to beefier systems for smaller slices of time, but most of it is being able to share data and collaboration between users.
If you're only used to cloud VMs that are setup for a single user or service, I guess your views would be different.
This is overwhelmingly the view for business and personal users. Settings like what you described are very rare nowadays.
No corporate IT department is timesharing users on a mainframe. It's just baremetal laptops or VMs on Windows with networked mountpoints.
When you have one OS that is used on devices from phones, to laptops, to servers, to HPC clusters, you're going to have this friction. Could Linux operate in a single-user mode? Of course. But does that really make sense for the other use-cases?
Yes. First, we use user level container systems like apptainer/singularity, and these containers run under the user itself.
This is also same for non academic HPC systems.
From schedulers to accounting, everything is done at user level, and we have many, many users.
It won’t change anytime soon.