Frank was too difficult to rehabilitate. Unlike Hot Lips who always took her job performance seriously and was very skilled at what she did, Frank at best was on the border that separates barely passable surgeon from dangerously incompetent surgeon. Add that to his endless character flaws it would be way too much of a stretch. In addition the presence of Frank might complicate the perceived need to fully rehabilitate Hot Lips, there seemed to be a need to eradicate Frank from her history and that couldn't be done as long as he was part of the show.
I don't believe Larry left the show of his own volition, I believe they made him an offer he had to refuse.
I think they did try to make him a little more sympathetic toward the end. I seem to recall Hawkeye and BJ taking his side after Hot Lips dumped him and was needling him about her new Major Penobscot.