I think that more than anything, VW chose to appeal to small sedan drivers that wanted a little more than what a regular (read: castrated) Jetta could offer. So, they ended up with a Jetta that's indeed more powerful and agile, but a bit softer than the GTI to balance things out for the every day sedan driver. One thing I will say about the new GLI though is that it's probably the best looking sedan VW makes now (yes, I think it even looks better than the CC). I passed by one the other day while doing errands.
But in the end, what VW decides to do with the GLI doesn't really affect me so much. I'll take a hatch any day and a German-assembled one, at that.