As far as I know, there is only one single system in FFXI that adjusts the difficulty of an 'instanced' event (read: Einherjar, Limbus, Nyzul, Assaults, etc) based on the number of participants. This would be the Mammets Quest Uninvited Guests in Monarch Linn. Why is this the only one?

It's well within technical specifications (BCNMs very clearly state clear times with number of players) and a simple linear scaling system (2 mobs per player, etc) would allow small and large groups to tackle the same event. To provide incentive for larger groups, it would be trivial if you made the target monsters 'drop' the valuable items. Hence, per BCNM, you would have more of a chance of getting the items if you went with larger groups, but it wouldn't make it impossible for a small group to also obtain said items. The idea could be expanded for single monsters by scaling HP (multiplied by number of participants) or nearly any other way the Developers see fit.

I'm very curious why this idea (which was initially introduced into FFXI back with Chains of Promathia) was discarded. Creating flexible events is a factor in determining how successful the event is (look at Einherjar when it initially came out for example).

If you think this is a terrible idea, please go ahead and state why. More importantly, if you think this is a good idea, please comment your support. The only way I can personally think of that would make this a less-than-great idea would be if the scaling was disproportionate (e.g. extremely easy with loads of people, or extremely hard with too few people, or vice versa) which is more of an implementation flaw based on the Developers choices. This 'system' can easily be made customisable by allowing the player to choose the 'handicap'.