Khajiit in Morrowind, Oblivion and Skyrim are all Suthay-Raht. For some reason the digitigrade feature used in Morrowind was axed in later games, it was either simplification (call it "dumbing down" if you want) or to balance the races.

Suthay-Raht is similar build and height as average man. Cathay is similar to Suthay-Raht but greater in size and strength and obviously Cathay-Raht is even bigger.

http://www.uesp.net/wiki/Lore:Khajiit#Sub-species_Notes

Ah. I remember reading an argument on some forums over whether the digitigrade feet even made sense for a bipedal species.

Speaking of Khajiit physiology, wasn't the only thing Bethesda openly retconned from the Elder Scrolls a certain... barbed body part, described in Daggerfall's edition of "The Real Barenziah"? I know actual cats have a part like that, but since Khajiit don't have to deal with the same things there's really no reason for them to have one. I think there was a dev post a long time ago about it, but I can't remember.

I don't see why digitigrade feet would be problem on a bipedal animal; they already exist in the form of birds. Cat paws as they are might not cover enough surface area to be practical, though there have been cats and dogs without forelimbs that were able to get around on their hindlimbs just fine.

Found it:

pretty sure Morrowind's were Cathay

I thought it was the other way around. Morrowind had Suthay-raht while Oblivion and Skyim had Cathay. They look similar, but Suthay have digitigrade legs and Cathay have plantigrade legs. Or did that get swapped around in a retcon?

They were Suthay-Raht, and have been that since MW (Ohmes in Arena, Ohmes-Raht in Daggerfall). The only time Cathays have been somewhere was the TES book, The Infernal City, and they're much larger and muscular than the Suthay variety.

If the khajiit in Oblivion and Skyrim are Cathay, why aren't they ~2.5m tall or even taller?

Simple, they are not Cathay, they are Suthay-Raht.

Because that's Cathay-raht, not Cathay?

From UESP which I linked earlier and which you clearly missed, the important bits:

Cathay is already larger than Suthay-raht.

Of course that ~2.5m was just a rough estimate since no Cathay has been seen ingame.

Just because they look like a species, doesn't mean they're genetically similar to that species.

I counter with http://elderscrolls.wikia.com/wiki/Khajiit#Moons_and_the_Khajiit_Breeds.

http://elderscrolls.wikia.com/wiki/Cathay - The Cathay are a relatively common type of Khajiit seen throughout http://elderscrolls.wikia.com/wiki/Cyrodiil and http://elderscrolls.wikia.com/wiki/Skyrim. They have plantigrade legs and are similar in height to Men.

http://elderscrolls.wikia.com/wiki/Cathay-raht - Still maintaining their agility, the Cathay-Raht are larger and more powerful jaguar-like Khajiit, often described as "jaguar-men".

http://elderscrolls.wikia.com/wiki/Suthay-raht - Suthay-raht have similar features to the Suthay but are taller, around the height of Men. Suthay-raht are the most common breed seen in Morrowind.

Therefore, Cathay probably are taller than Suthay-raht, but not to the degree you are asserting. You can liken it to the height difference between Bretons and Nords if you like.

This probably has to do with how some clothing and armor mods tended to give female Argonians serious 'endowments' which just looked weird...but then Iv always been a stickler about that...

Unfortunately everyone knows TES Crapia is riddled with false info. That should never be used as a source.