What about a three party system…the new party consisting of the 51% of the most conservative Democrats and the 51% of the most liberal Republicans?
The most conservative Democrats now are a lot more liberal/progressive than the most conservative Republicans. The possible exceptions are living in states where the Republicans are much more conservative than in other states, so the Dems still won’t ally with them.
Winner take all elections mean third parties lose out to the two main parties. The exception is where there are strong regional parties, but no part of the US is as different as Welsh and Scots are from the English, or as Quebec is from English Canada.