Why didn't she stay with Howard?

It's more likely Aldo had people call up Howard and deny the deal went through (including that main casting lady) rather than her actually losing the role. The role was set in stone and generally if you lose a role, you're done for. No one wants to work with an actor that isn't able to perform. Missing the first few days of filming has cost a lot of actors their jobs.

I think she had to switch to Aldo because she played Howard bad and he'd never want to work for her from that point forward and the guilt she felt from that point. She clearly showed a lot of emotional pain for having dumped Howard and he saw it. For her it was easier to just switch to someone else rather than have to worry about Howard messing over the dad like he did. I think Howard would've played along though if he was let in to the manipulation and I think he would have even forgiven her, since he gave his life for her. So I think in that vein the movie went for the sad ending.

The happy ending would have been Howard and Lydia sitting down at a park bench and her chiding him about not knowing how evil Hollywood can be and him admitting she knows the game and that she should be a talent agent in the future.

I kind of agree with you. One think I learned from casting agents is that the best ones are NEVER nice and emotional, they are sharks (i.e. Ari Gold) Its like real estate, if u back down too easily or rely on too many scruples, you may have a clear conscience, but never any clients