The single biggest determining factor in ditching the M-14 was that it was ungodly expensive to manufacture. Far and away one of the most expensive combat rifles ever produced by any country. The M-16 was something like half the cost per unit (and more accurate off-the-rack, not that it matters).
As for the ballistics of the .223, your are badly mistaken. If you've ever looked at physical models of terminal ballistics, there is a crossover velocity (2500-2700 fps, depending on the bullet) where terminal lethality takes on a new dimension due to reaching critical rotational energy densities. The .22LR has the terminal ballistics of a pistol bullet. The .308 sits on the edge of this envelope at the muzzle. The .223 is in it for about 100-200 yards out of an M16. I've never met an operator that wasn't quite pleased with the performance of the .223 when it mattered and even many old-timers prefer it.
And for those interested, the critical rotational energy density has to do with fragmentation behavior. Below the critical threshold, fragmentation adds little or no value to the terminal characteristics of a bullet. Above the critical threshold, the energy density is so high that the bullet literally explodes quite violently with the fragments travelling perpendicular to the center axis of the bullet at velocities around 250-300 fps depending on the specifics as a simple consequence of physics. At those velocities, bullet fragments are quite capable of perforating tissue, particularly in distressed tissue (like a temporary cavity). Hence why a good hit at relatively close range with a .223 can turn the insides of a person into hamburger that substantially exceeds the expected damage. The tumbling bullet causing damage bit is something of a myth -- ALL bullets tumble when they hit tissue. When it happens to bullets that exceed the critical rotational energy density, this frequently triggers the very energetic radial fragmentation.
And no this was not a design consideration when the .223 was originally selected. It was a fortunate coincidence.
As to accuracy, I would disagree.
As for a general purpose weapon, I would prefer a 7.62 NATO rather than a 5.56mm in fire hose mode.
While all the big bullet Bear hunters on this thread can no doubt master all aspects of shooting full power rifles in belted magnum calibers at 800 yards and beyond, the only thing that matters is CAN THE TROOPS HIT WITH THE RIFLE??? The answer, with the M14, was NOT USUALLY. With more training, a few strong and dedicated shooters will emerge as marksman, having mastered the skills necessary to engage small targets at extended range with big recoil and reduced inherent accuracy.
Or, you can start with 5.56mm, and EVERYBODY can shoot reasonably well, even the skinny guys and my goodness, the GIRLS!
Would you rather have 10 Marines that can enage targets to 1000m with the mighty M14, and 490 that can't shoot it past 10ft and hit anything , or 400 Marines that can engage targets to 500m with the M16, and 100 that can shoot it competently to 200m?
The issue surrounding service rifles and calibers are usually NOT related to "which is the best rifle for SGT York" - but which is best for the majority of soldiers, and to paraphrase the pistol shooters, a hit with a 5.56 is a lot better than a loud miss with a 7.62.
"MORE TRAINING" is not the answer, either. Training resources are limited, and the bottom line is you get more hits for your training dollar with 5.56 than with 7.62.