Again, way oversimplifying it. Internal Iranian politics are just as complicated as any other country's, maybe even more than most due to the 'dual' governments.
He didn't 'lose' anything that I remember, he was elected and served the maximum two terms as President.
I think you are right about the term thing, I'm impressed by your attention to this issue. That being said, I think you can remember everytime Khatami said something "pro-West" he had to follow that up with a statement from the party line to appease his hardline superiors.