In the mid-1930's arguments for and against OO vs HO did focus to some extent on the issue of motor size and space availability in locomotives but this faded by the early 40's. As for HO being a fad - Lionel would have had to have been the last to know this wasn't the case.
Model Railroader had an annual suvey of gauge popularity TT, HO, OO, S, O, and others here's the way their poll ran:
1936 HO - 36%, OO - 2.1%
1937 HO - 33.9%, OO - 10.3%
1938 HO - 36.5, OO - 10.6%
1939 HO - 39.3%, OO - 16.9%
1940 HO - 46.3%, OO - 13.6%
1941 HO - 45.6%, OO - 14.8%
1942 HO - 53.5%, OO - 13.6%
1943 HO - 48.9%, OO - 12%
1944 - no poll
1945 - no poll
1946 - no poll
1947 HO - 54.9%, OO - 8.5%
1948 HO - 62%, OO - 6.5%
1949 HO - 69.3%, OO - 2.1%
So even in the pre-war period OO was definitely in the minority and at no time came close to matching HO in popularity.