St. Clair was never going to be a showcase for LRT as it is a local streetcar route serving local demand. St. Clair has absolutely nothing to do with this SRT/SSE screw-up. It is exactly as it was intended to be - as you note a local line with close stop spacing. Could that have been tweaked a bit to get rid of some stops? sure - but it wouldn't have turned St. Clair into a route that could compare to the SRT (grade separated, longer multi-car LRT trains, etc.).
The political push has been from misinformation ("subways, subways, subways", streetcars are terrible, and poor Scarborough is getting screwed by the Downtowners). Its clear the decision to eliminate the transfer at Kennedy is only based on ideology and the political pressure that this is "the right thing to do". When the dust settles, there will be nice new subway running to STC to make Oxford and the subway or nothing people nice and happy while the majority of the residents will still spend the majority of their commute in traffic on a bus. There will be no increase in rapid transit service in Scarborough beyond eliminating a transfer and spending all this money now will essentially eliminate future work on transit expansion there. The money will be spent, people will claim a glorious victory and then you will not see another major expansion of any part of the network (outside of RER) for a couple of decades.
We can get upset about the subway expansion - and it only shows how backwards political planning of transit can be - but the political victory was won when Tory flip flopped.