The problem with Oman's point is not only that it's written from a very Protestant, 20th century perspective, at a high point of teleological Whig history, but that it's also incredibly post-Enlightenment in its views on religion.

Teleological history is essentially written from the perspective that history is intrinsically progressive; that broadly speaking, things continue to get better, and that the present is thus the best things can be. This approach gets very quickly co-opted by 'Whig' historians in Britain to essentially brag about how great early 20th century Britain is. After all, all of history had been progressing to that point. This then puts the impetus on people throughout history to have been naturally trying to progress towards a Liberal, Anglican, Anglo-centric parliamentary democracy. In this model, the Papacy is therefore the negative force of repression, oppression and, given England's reformation and history with Catholicism, naturally the enemy. Of course, it's only an accidental by-product that this viewpoint enables its holder to have a sense of superiority over the French, Spanish, Italians etc. who are still (quite happily) labouring under the yoke of Catholic oppression.

His point also follows the post-Enlightenment idea that religion is something that, essentially, we choose to believe in. To the medieval mind, however, it's almost wrong to consider religion as a separate aspect of every day life - belief was an intrinsic part of everyday life, and very real to most people. Augustine of Hippo's City of God was one of the cornerstones of early medieval theology and political thought, and posited the Church as the natural successor to the Roman Empire, whose role was to act as the unifying force of a Europe fractured along ethnic and political lines. While individual Popes come and go, the office itself would act as the spiritual head for all of Christendom.

So to give a basic answer to your question, while Oman might be asking why Liutprand 'missed the chance' to disband the Papacy, it probably simply wouldn't have occurred to Liutprand that that was an option. His disagreement was with the Pope specifically, not with The Papacy as an institution. And he was still a Catholic throughout this period. Throughout the medieval period, various nation-states and Empires deposed or opposed Popes, but always with the end goal of replacing him with their own candidate, never of abolishing the office.