S3 was an improvement over the absolute wreck of a deck-clearing exercise that was S2, but I don't for a second buy that there was no room for the couple of S1/S2 characters that were left by the end. The S3 script was a self-indulgent nostalgia-fest. Daniel Davis? Liz Dennehy? That's plane ticket, costume fittings, and actor salary, possibly hotel and food per diem depending on how quickly they got Davis back on the plane. For ten second appearances that are literally just "hey! this episode?" moments. Cut out a few cameos and some of the baker's dozen of new one-off characters, and I expect the $$$ would have been there. Matalas just didn't want his new Gary Stu to have to compete with characters who'd already done the parent-child story beats with Picard.