A lot of track upgrades would be required. GO trains can currently go 120 km/h (I believe) on sections between Guelph and Kitchener. Using that line would add a half an hour to your commute. It makes no sense going north to Guelph and Brampton, then back south into Union instead of getting directly on the LSW line (Especially considering the fact that LSW has express tracks in many sections).
In an ideal world, that would be great to see, but I think right now the region is committed to using the Brampton/Pearson routing for Kitchener GO trains and future HSR service.
Massive amounts of money were committed to the Georgetown Corridor project (and its massive rail-rail grade separation achievement) and now it will eventually accomodate several new tracks that will eventually be used for various service increases throughout this corridor. Also, high speed train service that includes a Pearson stop (proposed via Malton GO + extended LINK shuttle) would allow London/Kitchener to gain Pearson convenience, which is a lot of political points and makes the HSR business case a little bit more viable. And since HSR is electrified, 15-min RER will use the same route as HSR. And thus, RER will be on the same routing. Also, Freight Bypass is cheaper way to fully own the passenger corridor to Kitchener, than via Lakeshore West (to west of Burlingon which is freight-owned). There's only a short section through Brampton that is not Metrolinx-owned, and solvable by the 407 Freight Bypass (~$5bn), while owning the Kitchener corridor fully via Lakeshore West, will be likely far more costly to Metrolinx, unfortunately.
Politics, cost, and congruencies (HSR+RER) dictates we're going to get Kitchener service only via the Georgetown Corridor. It doesn't make as much sense from "as-crow-flies" straighter-line department, but economically and politically, we're stuck using this route.
Blame the 1990s privatization of CN for losing passenger-priority access to our rail corridors and being forced to build a freight bypass to free up the corridor. But it's still much easier than trying to solve Kitchener via Lakeshore West. (It's also why GO trains don't reach Hamilton offpeak -- being forced to stop one stop short of Hamilton). That's just one stop short! Imagine solving this problem all the way to Kitchener via Lakeshore West.
Yes, Lakeshore West is more upgraded, but Metrolinx owns more track to Kitchener via the Brampton/Pearson routing rather than west of the Lakeshore West routing. That gives the flexibilty to run all-day service that Metrolinx cannot west of Burlington via Lakeshore Westing. There's a big difference between spending billions to upgrade the Kitchener corridor, versus not having that option at all (west of Burlington on Lakeshore West) since the freight companies won't sell that portion of the track to Metrolinx.