Katich wasn't scoring runs in the middle order, and was rightfully dropped, as was Clarke. Clarke got a bit of a lucky recall and grabbed it with both hands while Katich worked on his game and murdered domestic bowling attacks. Not scoring runs in England, then falling cheaply (all <10 scores) in the following Tests he played at home was the reason why he was dropped, make no mistake. And being on the wrong side of 30 at that stage, and with so many batsmen waiting in the wings, most people thought that it would be for good. Indeed, I remember chatting to a few people who said 'nah mate, he's gone, never coming back'.
The dropping from the ODI side was more a reflection of negativity towards the fact he was opening - quite a lot of people berated the fact that he was opening, let alone being in the side at all, and wanting Hayden or Watson back at the top of the order to partner Gilchrist.
Katich was seen as an unfashionable villain from the lost Ashes series, and it seemed as though the selectors were waiting for a good excuse to drop him, which they got in the DLF cup after he scored just 92 runs in 4 innings. Before that he averaged 42 opening in the 05/06 season in ODIs.
So I don't really follow the fact you think that his ODI performances post dropping was a reason why he wasn't recalled. In the time after his dropping, Hodge was brought in and averaged over 50, then Symonds finally repaid the faith and Clarke blossomed in his second chance. The main reason why he was recalled as for cover for injuries in the tour of the WIndies. If Hayden wasn't injured, there's a chance he wouldn't have played at all.
I don't think it was a question of not being good enough for Tests, more a question of form and if he could iron out a few problems, which he did and now he's back and making a lot of runs.
