Why the iPod classic had to go - straight from the lion's mouth

Engadget nailed it:

"We couldn't get the parts any more," explained Tim Cook. "They don't make them any more." While the iPod Classic isn't exactly a creaky transistor radio just yet, that's how it went down. "We would have to make a whole new product.... the engineering work to do that would be massive." The difficult truth that some of you probably don't want to hear: "The number of people who wanted it is very small."

So the story is no more parts and it's not worth it to redesign it because not "many" people want it.