I remember when Playmobil first came out with their round tower. It was such a HUGE improvement and I can not say how excited I was to see pictures of it announcing it.
You are right, of course, we need a bigger tower (diameter) - it is way underscale for the size of the figures. It works much better with 54mm figures.
I wonder why they changed away from the Steck castle pieces in the first place (let alone the other buildings and why System X was introduced at all). However, I suspect money and marketing were the major players.