It's probably already been said but...
I don't necessarily think the "27" inch iMac is dead" so much as in a (painful for current users but ultimately) necessary retooling.
Anyone whose been with Apple for more than a decade can tell you that the price of "pro" macs has been trending up for a long time. The PowerMac/Mac Pro has gone from being somewhat "affordable" (if you really wanted/needed it) on the lower end to being completely out of reach for the everyday Joe/Jane.
At the same time the introduction of larger screen sizes (ultimately 27,") and better mobile/lower TDP GPUs allowed the iMac to scale up to a level of performance where it began to meet the needs of a lot of people who would've previously bought a Mac Pro.
This trend was exacerbated when the Mac Pro was effectively abandoned from 2013 - 2019, and the market for 27" iMac's basically just turned into everyone who needed more performance than a MBP/Mac Mini, even when it wasn't really a good fit.
The Mac Studio... is Apple's first step toward rectifying this. Giving people who want a fast, no compromises, small form factor Pro Mac (in some ways, the fabled xMac) they're first real option since... the G4 Cube?
It also just happens to be a very good replacement for the current 27" iMac, which is, I'm guessing, why Apple just decided to discontinue it.
I do think we will see a return of the large form factor iMac, but not until they can deliver on what truly differentiates the machine from its peers, a bleeding edge screen. Think back to the announcement of the OG Retina iMac (2014) or the OG 27" iMac. What set those machines apart was that on launch you couldn't get a screen that good for that price, let alone an entire computer from any other manufacturer. Unfortunately none of the emerging display tech (miniLED, OLED, microLED) is at a level where Apple (feels it) can cost effectively bring it to the iMac.
Sure Apple could've slapped an M1 Pro/Max in the existing chassis and call it a day but that's not their style. Does it suck if you were waiting for one? Yes, but the Mac Studio is a great machine that can do that job. Furthermore, it just means that when we finally DO get another large form factor iMac it's going to be jaw dropping
EDIT: To everyone whining about the Mac Studio price... Like... real talk... how much did you THINK it was going to cost? Have you been paying attention to Apple's pricing structure over the last few years?
(PS you don't have to buy the screen FFS. Just get one of the any other great options for 27" displays that aren't stupidly priced)