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Superstar
Take a look at the Route Histories on Transit Toronto. The High Park Loop is a very old loop (ca 1910 or earlier) and I bet the College car went there to serve people living in that area. While it is true that fitting a third route into the current Dundas West station would be virtually impossible I think it would not have been popular as the High Park loop does allow the 506 to serve a whole different group of potential passengers. See: http://transit.toronto.on.ca/streetcar/4105.shtmlProgress.
Somewhere (maybe on Steve Munro's blog) I read that the reason that the 506 loops in High Park in the middle of nowhere is that to end the run at Dundas West, there would have to be a third loop which there is not - I forget if the reason is space or cash.