Has it even been credibly established that Dennehy was even in the running for a regular spot on the show? So far, all I can recall is that rumors spread like wildfire that summer that Stewart wanted out, but there's not been anything I've seen that suggests even remotely that it was seriously considered, let alone there being a possibility Frakes wanted out of the show.
The reason they never returned to the issue between Riker and Shelby is simple: The Borg showed up and more important matters took precedence. By the time it was all done, Shelby got her promotion and then left to oversee the construction of the new fleet. That was where she was needed most, and that's where she went.
If anything is ridiculous, it's that Picard was let back on his ship and free to resume command without any kind of rehabilitation (beyond a charming week home in La Barre)... and Riker just steps down with no explanation given.
Why would Picard NOT be free to resume command? It was his ship, and he didn't betray the UFP, he was forcibly violated.
And he did get therapy from Troi as established in the opening scene of "Family."
The only way I could ever make it work in my head was that Starfleet kept Riker aboard to keep an eye on Picard.