Firstly I would take issue with your assumption about the 'early days'. There were lots of duos and trios on the folk scene, as well as some larger groups, and most of them were working the folk clubs. As for not being as big as the solo acts, Young Tradition were huge, and the Spinners had their own prime-time TV show, while the Dubliners got onto Top of the Pops.

The intimate atmosphere of folk clubs really suited solo artists, but a solo performer can seem a bit lost on a large stage. I think what has changed is that there are far fewer folk clubs booking guests, so performers are turning to larger venues. There is then an incentive to put on more of a show by becoming a group or adding backing musicians, which in a larger venues (which also usually charge more than folk clubs) becomes financially justifiable. There is also a desire to replicate on stage what you have done on an album, where guest musicians are often brought in to add interest.

Also, being in a band is a lot more fun. It's a lonely life for a solo musician, whereas playing with a band not only provides companionship but is musically rewarding.