I think safety happened to that too and small, light biscuit tins like the 106 just didn't work any more.
Also Peugeot had a new ugly stick and wanted to try it out. Having said that, I think the design of the original 107 has aged better than the other variants.
Unfortunately, the 106, and its twin brother, the Citroën Saxo, are stuck in the 80's when it comes to body rigidity and safety ratings. They also have a rear axle which will inevitably get loose, or even fall apart completely. On our Saxo, we replaced the rear axle with one from an Italian scrapyard Saxo the first time it failed, and then had it rebuilt a few months ago.
The Saxo is a pretty good car to drive, I can attest that. It's small, nimble, has enough grip on proper tyres, although with the 1.1 engine it's just slow. Its VTR and VTS version are somewhat coveted, as are 106's XSi and GTI versions, although the most desirable of them all is the 106 Rallye.
The 107, however, I don't know much about, but while Evo magazine rated the 106 Rallye as #75 on a list of 100 best driver's cars of all time back in 2009, the 107 had a measly three star out of five rating when they tested it. And then, as
@Perc pointed out, the 106 just looks like a proper small car, especially that Rallye version in that red with those white wheels and racing stripes. The 107 looks a bit funny. Oh, and of the first-generation Kolín-built trio, I think the C1 has aged the best.