Flash memory used for program storage is much much cheaper than ram. One of the only wins that 8 bit code has over even thumb code is a faster instruction bus, but for a pipelined processor that doesn't matter anymore.
8 bit would be dead if the 32 bit parts included all of the peripherals engineers actually need to build stuff (SPI,analog,timers,etc).
There are lots of 32bit micros with all those peripherals, I think it's just that the embedded industry moves slowly and adopts new products with caution. I think it's only a matter of time before all microcontrollers are ARM and the various 8/16 bit architectures die off.
There are, but the AVR parts for example have an amazing balanced of needed peripherals that still makes those parts attractive. It Atmel replaced their AVR cores with a cortex-m0 but kept all the peripherals in place and the pinouts and the part numbering scheme the same, they would have a huge boost in market share.
8 bit would be dead if the 32 bit parts included all of the peripherals engineers actually need to build stuff (SPI,analog,timers,etc).