I think Schala purposely decides not to look for Magus, for his own good.
Imagine history from her point of view, in the timeline we, the players, can experience. It's at the Ocean Palace that the Prophet reveals himself to be Magus and recites this vow:
Magus: I swore long ago... that I'd
destroy you!
No matter what the price!
It is time to fulfill that vow.
Feel my wrath, Lavos!!
Schala realizes here that her baby brother, against all imagination, survives the Ocean Palace Incident (and she probably realizes here that Lavos
will destroy them all) and even conquers time to return to this event and have his revenge. And he's now this incredible wizard with fierce powers. That's gotta be pretty unfathomable, right? And yet even so, Magus is powerless against Lavos. So knowing what's about to happen, Schala saves him, and the others, and perishes.
Or so she thinks. Lavos has control of her now, and is using her power to become the Dream Devourer. And again, against all odds, Magus reveals himself once more, this time at a place beyond time. And he is still dead-set on saving Schala. She knows that her brother cannot save her, and she knows that his determination is so great, that he will
never stop trying.
So she does the one thing she can do to save him: break his spirit, tell him his quest is hopeless, that he cannot ever save her. Schala is giving him a chance at his own life that isn't tethered to her or Lavos, something he never had. And Magus actually listens. Whether she ultimately foresaw this or not, Magus willingly gives up his memories. His determination would destroy him otherwise, and I'd like to think his pride is still too great to ever allow that to happen.
As Guile, he does live his own life. He becomes his own person, not tied to Schala or Lavos or Zeal. He becomes accomplished, rising to the top of a magical guild. He makes friends. As Guile, Magus is happy. And I don't think Schala, at the end of Cross, wants to ruin that life she gifted him.