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Is it really relatively small? DC proper is small, but it's just one jurisdiction out of many in the metro area, and not even the largest one. Uber covers a big chunk of the area. Looking at Google Maps (with the scales matched!) you could fit SF proper in about one quadrant of the the DC beltway, and of course there's plenty of city outside the beltway too.

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True, but DC isn't a traditional metro area. The entire regulatory structure changes once you leave the borders of DC, because you've moved into a new state (Virginia or Maryland). Uber's coverage area for this service takes a hard stop at the DC borders to keep them from running into a new set of state laws and taxes they'd have to deal with.

Not quite. I live in Arlington, VA and they're currently facing hurtles but they still service the area. For a while there, cops were pulling suspected Uber drivers over and fining them between 500 and 2k (I even had drivers ask me to sit in the front seat so it didn't look like he was chauffeuring). Uber would pay all of the fines for the drivers. It's been an ongoing battle but from what drivers have told me recently, they've calmed down with the arrests.

The grocery delivery service is only available in DC, though. Actually, just a portion of DC. Which takes us back to the question of why DC, since you could carve out a suitable portion of just about any city.

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