The yard capacity problem is in play interlining or no... Sheppard's existing tail tracks really aren't going to accommodate any but the smallest extensions and the trains need to come from somewhere.
In terms of making this, or even a non-interlined extension work.... I have to assume a Sheppard West extension itself would include at least some tail track capacity. Beyond that, I also assume that any extension is going to include connection to the north end of Wilson yard, which I would hope is designed to allow northbound dispatch onto YUS or eastbound onto Sheppard if the junction is configured for interlining. Don't forget that we are talking about Sheppard length trains, so squeezing additional storage into Wilson is also feasible, and while not cheap ought to be better value than, say, the underground storage we were looking at for Richmond Hill Centre before it was brought above ground.
I'd also suggest that Davisville would likely dispatch all trains northbound in any scenario involving Shepard West, the connection allowing Wilson to dispatch trains southbound on Yonge quite easily so long as a north to east connection exists, be that via a Sheppard / Yonge style junction or a north end tie-in. Beyond that, I'd be quite surprised if any eastern extension on Sheppard didn't have some kind of storage, the flip side of which being that a Sheppard line extended only west will have pretty small numbers of additional trains. If we ignore interlining and extend only to Sheppard West I would be surprised to see a requirement for more than two additional sets....