When I first read up on the show, I was indeed disappointed to learn that Dimmy wasn't in the last two seasons. While it was gracious of the animators to draw in cameo appearances of him, they simply weren't enough.

I think Brian Cummings left the show to work on another project, and the writers just didn't bother to find a replacement for him, so they decided to write him out completely. They also could've done it to make room for some of the other supporting characters such as Corky and Jojo. Who knows, really.