Thin clients did happen, but they didn't catch on. In fact, one of the main Xorg developers, Keith Packard, worked on some in the 80s. Sun Microsystems created the SunRay product line that provided a thin client environment to their SunOS/Solaris and Linux platforms, although the protocol was proprietary and not X, likely due to the same reasons Wayland was created. On a side note, Keith's presentations on why X sucks are some of the best and worth viewing to understand why Wayland is so important.
When I was using a thin client, it was a great experience when you used a very simple environment and no animation, such as an XTerm in TWM. The experience quickly deteriorated when you tried to do many on screen changes and lots of interactivity, which is common for people simply surfing the web on most pages such as facebook. This was compounded when you had some 16 clients on a single host server.