Thinking of it this way:
Corthell Hall: Not a huge venue. Lots of damp practice rooms in the basement. Other classrooms are either too cold or too hot depending on season, which isn't great for practicing instruments. It's a great venue for RECITAL space or smaller performances (like brass, strings, vocals).
Walter E Russell Hall: The theater spaces isn't GREAT, but is very well USED by the theater program. I'm not as familiar with rehearsal space, dressing rooms, classrooms, storage.
Brooks Hall (The Spaceship): Sometimes the lower floor is used for rehearsal space as needed, depending on what student life has going on etc. This accommodates overflow and competition for rehearsal space.
Luther Bonney Hall/Talbot Lecture Hall: These really don't accommodate overflow from Russell or Corthell. I forget what these spaces are like.
Abromson Center/Hannaford Hall: Good for small recital spaces, but that's about it. Are there practice rooms etc in Portland?
If USM has been using Merrill and other venues for bigger events for a while, perhaps they don't see the need to sink money into a huge venue for themselves if the local area can provide it. I think they're seeing it primarily as a replacement of Corthell. However, the new building would need to be large enough to provide vocal, instrumental, and dance studio spaces, practice spaces, rehearsal spaces - WITH good acoustics. There would need to be a large enough theater-type space to effectively run a show, back stage area, dressing rooms, costume room, sets. It all starts to get really crowded. There tends to be competition for space between the programs where one needs the space to rehearse for a show, the other needs space to rehearse choreography, the other needs to rehearse a section or full orchestra. They're going to need a good schedule for departments to "book" space if they're not specifically designated.
I suppose it would be more tragic if USM pulled what St. Joe's did when they filled in their auditorium (Heffernan) to enlarge their library. Then built a shrug of a lecture hall/performance space in Alfond Hall. However, St. Joe's doesn't have a theater, music, or arts program. It was mainly used for either lectures, large meetings, or the theater club.