Waluigi is just Wario's next door neighbor that Wario met while playing tennis one day, and invited him to the big tournament Mario was hosting. Waluigi hit it off with the rest of the Mario squad so now he hangs around sometimes. He doesn't want to be a Smash fighter, and it took some convincing to get him to appear as an assist trophy.
in-universe, i see it as a Friend Group A and Friend Group B situation. basically wario has chemistry with both, but the groups themselves never go out of their way to interact with each other--i.e. waluigi may not be particularly interested in seeing people outside of the mushroom kingdom, unless you count the wario mangas where he hangs out with Wario on his (ad)ventures.
alas, i can't find it, but there was a graph i saw on twitter that illustrated this exact relationship (or rather lack thereof) by grouping the universe of characters revolving around Wario into different franchises: Waluigi, Wanda, and Tatanga were assigned the Mario franchise; the WarioWare crew was assigned, well, WarioWare; Captain Syrup and Shokora were fit with Wario Land; and so on. These groups of characters don't interact either because they're awkward together or because Wario has no interest hooking them up.
He struggles with being socially accepted, and when his closest friend (which isn't very close) reveals his other friends, he feels excluded, and is disappointed in himself and gives up on a social life.