The factions were dropped because of Monte Cook's Faction War story, which is considered canon for 4e
The Lady got real pissed when all the factions started getting a little too antsy and sent some dabus around to every faction headquarters exclaiming "The City no longer tolerates the presence of your faction, abandon it or Die."
All but six factions disbanded, split into smaller organizations, or merged with others. The remaining six factions moved into the outer planes.
For my own homebrew campaign I've written up a story involving the return of those six factions and the siege they decide to lay on Sigil.
The Dabus, Fell, works with the sub-group the Will of One (originally part of the faction The Sign of One) to resurrect the god of portals, Aoskar. The other factions likes this idea as it'll help to knock the lady out of the way, but the problem is how to get the lady out of the way enough in the first place to be able to resurrect Aoskar as her will keeps his petrified form in Astral plane being shredded by her blades.
To do this the Athars, who of course believe that no power is truly a god and deserving of worship or fear, returns to Sigil and begins murdering Dabus', assuming that the Lady may just be a projection of their minds like how Many-As-One is a projection of the cranium rats.
From Monte Cook's Faction War, a detail has been taken into account that the Blood War has poured into Sigil, so I'm having the Nameless One from Planescape: Torment return to physical rip the mask of the lady's... whatever she has that passes for a head.
You can figure it all out from there, otherwise I'd be giving you the real deets on my campaign, which I'm keeping secret of course, considering how epic it is.
The Faction War book was published late in Planescape's official run (1998 I think?) and provides all the backstory for why Sigil is the way it is in 4e
