Colt abondoned the civilian market for economic reasons and political correctness. That rampaging stallion adds a couple hundred dollars more to the gun and most people are more concerned with the bottom line than a maker's mark. Besides, a cobra or panther is way cooler on the side of the reciever.
It became politically improper to sell "assault" weapons so Colt abandoned the civilian market in order to curry favor with legislators. I also feel it may be an attempt to avoid being drawn into the various lawsuits aimed at the manufacturer's supposed liability for the criminal and/or negligent use of their product. I don't think military contracts are that big of an income for Colt, I think most of the military arms are produced somewhere else under contract under license to Colt. Singapore and Belgium stick out in my mind though I may be mistaken. Colt was popular with police departments for a time but many of the M-16s I see in squad cars are surplus military A1s and A2s or other manufacturers.
I'd guess Colt stopped making revolvers due to their not being profitable enough. Colt seemed to gravitate towards the high end of the revolver market with their prices which most buyers could not or would not afford. S&W and Ruger seemed to reach more consumers with a mid-price product with offerings by Taurus and others taking the entry level. In the single action arena, imported guns were just as reliable and considerably cheaper. One could buy a first or second generation Single Action Army for nearly the same price as a current one (it may be a little on the rough side) but it would have the aura of being a real "cowboy gun".
If Colt were to be bought out by S&W, it would be a bad thing for Colt. Running two totally separate companies duplicates too much infrastructure and is not good for the bottom line. If this were to happen, I feel the Colt name would eventually come to stand for a lower price product (a la Stevens/Savage or Spartan/Remington) or be removed from the field. The only good I see out of this merger is much of the machinery would likely be put to use instead of being sold for scrap and melted down into slag.