RAID controllers are expensive because they need to calculate checksums very fast or the controller itself becomes the bottleneck. Same thing would happen if you move the controller to the drive itself. It would still need to calculate the checksums. Yes, the controller on the drive could be a bit slower but then the read/write circuitry would have to be multiplied so all the platters could be written at once (since if you only wrote with one head at a time, it would be slower than a regular drive writing sequentially, also, regular drive does not need to write checksums). You also need another platter, so even if the electronics were free, a 2TB RAID drive would cost as much as a 3TB drive because of the additional platter.
All that to save the data in case of a very unlikely event - a platter or a head fails, but the rest of the drive works normally. It would be better to just use more error correction so a bad sector can be recovered.
Im all for that, but that is a Really hard thing to do. Id think the reason the industry stuck with the 3.5" drives is because its a good mix between reliability, memory size, and price.
Because 5.25" drives are slow when random access is needed. 3.5" drives are faster, that's why they are the industry standard. However, when SSDs become cheaper and take over the "fast drive" function, then, I think, 5.25" drives will come back as the "slow, but big and cheap" drives.
As for reliability - I do not know what the statistics are, but my drive is probably 20 years old and is still working perfectly (zero grown defects).