I don't think it's fair to say that the Terrans don't have any power because Alpha Squadron wasn't able to take down the entire Zerg Swarm.
You said that given the climate at the time, the Confederacy might have pulled back troops to Tarsonis, which would have been eliminated by the Zerg invasion. This is true, except that since Tarsonis' defences were mostly based off the orbital platforms, many could have escaped the carnage.
There's nothing wrong with Terran versus Terran as long as it doesn't dominate everything else. But that kind of internal focus leads to isolation from the rest of the setting, which is already a major problem in the setting. I've already complained about how the UED, a faction created with the express purpose of fighting aliens, spent six out of eight missions in Brood War focused on fighting humans. And I think you've brought up yourself how StarCraft II's storyline thus far has been fixated on Terran conflicts to the detriment of everything else in the setting.
As for why it reduces the scope of the setting, Earth is an important point of reference for anyone in the audience. If the Koprulu Sector Terrans are lost and can never home, then the distance between Earth and the Koprulu Sector might as well be infinite. And between here and there, there could be anything. Now, you could say that there's still an infinite space surrounding the area that includes Earth and the Koprulu Sector, and technically you'd be correct. But without something significant for the player situated in that expanse, the audience has no reason to care. It has nothing with which to imagine the distance. Even if Earth never shows up in the narrative, the fact that it exists 'out there' is important because it serves as a basis from which the audience can extrapolate distance. Zerus served a similar purpose, though not as significant since it lacks the 'home field advantage' Earth has for the audience.




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