Beware anything an audio store salesperson tells you, but no doubt that was one reason. IMHO a bigger reason was that they simply didn’t understand how to use the new tool yet.
While it’s true that having only 4 tracks limits your ability to do stereo imaging, it’s not the reason for hard-panning (one instrument on the left, one on the right). I got a 4-track reel deck back in 1978 and over the decades did a lot of stereo mixes with it, never once using hard panning for a given instrument.
I’d be surprised to learn that early stereo mixing consoles had switches rather than pan knobs, but then again, since they didn’t know how to use the tool, it’s also quite possible that they didn’t know how to build the tool. Regardless, any studio of that day had engineers (back when they were actual engineers) who could whip up something as simple as a pan circuit in a jiffy and add it to the processing chain.
However, I wouldn’t be surprised to learn that a lot of early stereo was mixed using equipment built for mono, so they used it in the simplest and most obvious ways, and it’s easy to send a signal left, center, or right, but takes a pan pot to go anywhere else.
But I think the main reason they stopped hard panning was that people don’t like it, not after the first time hearing it. Also, it didn’t take long. The stereo transition period was the late 60’s. Before the mid 60’s, stereo was unusual. By say, '69, stereo was typical, and hard panning was pretty much over. No doubt there are examples where it was used, but for every example where it was I bet we can find 10 that were mixed reasonably.
Today’s productions use scads and scads of stereo imaging technique. If you don’t believe me, find some gear that allows you to listen in mono (for example, any Digital Audio Workstation on a computer, or even a simple free program like Audacity) and compare monitoring in stereo versus mono. Huge difference.
Definitely the wild uses of stereo, like the chords zooming left to right (or the footsteps, on Dark Side of the Moon), are unusual today, mostly because it’s been done and isn’t novel and doesn’t really suit the music.