When they built the original dome, they didn't have basketball games to worry about and football was played elsewhere for a year. Plus the area was essentially a blank slate.
Zoning challenges and neighbors, of course, would be a challenge as well. New infrastructure costs money, too. But at the end of the day, if you can do something for $200m that's kind of half-arsed, but on-campus or building something for $350m that's modern, thoroughly extends the lifespan, and addresses the big issues (parking, ADA accessibility, fan experience/seats) then that becomes more palatable.
I'm not opposed to either, but I would be disappointed if the drivers/priorities that are limiting factors to doing something truly nice are keeping the location the same and not interrupting football/basketball seasons. The dome footprint is valuable real estate for a constrained campus that wants to build new academic buildings where as nearly all the athletic buildings are located at Skytop/South Campus.