As Stillwater's legendary George Thole said, "why not give everyone a trophy."
There's no really good answer. Though I agree, fewer classes would be better, but the larger outstate schools are in a tough position. Schools like Moorhead are so isolated from similar sized schools in-state that travel becomes an issue. (The same is true for Superior and Ashland in Wisconsin). The Big 9, which is Faribault, Owatonna, the Rochester schools, Austin, Albert Lea and Winona have very long travel times as well.
It's even worse in a state like North Dakota, where you have the Fargo, Grand Forks, and Bismarck schools, and a couple other large towns scattered all over, like Jamestown, Devils Lake and Dickinson - you're talking about four hour bus rides for high school games.
The other issue we're starting to see in Football, is schools dropping down, not because of enrollment, but because of ability to field teams. Someone mentioned some of the Minneapolis and St. Paul teams. Decent enrollment sizes in some cases, but with no feeder program like the suburban schools, the programs are really weak. It's even spreading to the suburbs. Where I currently live (until we move in a month) we're in the Osseo school district, and where we live, the kids would go to Park Center. When I was in high school, graduating 20 years ago, Osseo and Park Center were big time athletic powers, and in the same section as where I went to school. Now, Park Center has dropped to 4A, not because of size, but for economic reasons. The school has a very poor economic demographic, and can't field the teams they once did. How do you determine that?