I think it comes down to capacity limitations. The long term plan is for the line to terminate at South Campus, but the 114 st/ University Ave intersection is maxxed out; they can't have both lines going through there at acceptable frequencies without causing unimaginably bad traffic congestion. Back when the Metro Line went down to Century Park, it had less frequency because of the issues with the signal system. I think they moved it to Health Sciences once the signal system was fixed, and they could run the Metro Line trains more often.
In the long-term, the city wants to grade-separate the track at that intersection. Should it have been done originally? Sure, I think so. I think it'd have made more sense for the LRT to come up closer to McKernan/Belgravia as was originally planned. But unfortunately, the province didn't give the city enough money to work with, so here we are.