One: yes, the show works better when there's only one(-ish) Time Lord around. The Doctor is cool. Knowing that there's a whole planet of Doctor-like beings out there, and that they're all pompous old farts in funny hats is not cool.
Two: dramatic reasons. Daleks are the ultimate survivors. That's their purpose, that's what they're about. A story about the Daleks coming back from what we thought was total annihilation almost writes itself. Time Lords are all about decadence and complacency. A story where they'd come back from total annihilation goes against what has been their dramatic impetus up to now.