You're entirely correct, but we've become infected with SOE-think. Eventually you are always going to have a compromised node, and defence/detection in the node is hard and constantly evolving. The kernel attack surface is still large and complicated.
In contrast, network interfaces are well controlled. If people started with 'deny all' in their fw permissions then added the minimal necessary holes then lateral movement would be a lot harder.
I think the best argument for selinux/apparmor is that a lot of application specific security hardening can be packaged into standard configs. In contrast, there is little to orchestrate this for VMs/containers/physical hosts. Inter-VM/CNTR network control seems difficult (open vSwitch).
If we could have easily configured, hypervisor enforced firewalling and encrypted tunneling then that would be more useful confinement.