New technology is not always adopted all that readily, and diesels from what I know (and i am not an expert on the diesel-steam transition period) was very much the same way. From what i recall reading, for example, it took a bit for diesel-electrics to have the kind of power output to handle the big freight trains for example. Some of it, too, is that when you are dealing with new technology potential adopters can be reluctant to adopt them because they are still an unknown. Looking with hindsight we know that Diesel-electrics are a lot easier to operate, make MU's a lot easier and using less labor and are a lot more reliable than steam engines, but at the time there likely were still questions. My dad worked for Bell Labs in the 1950's, and they were debating whether to go with vacuum tubes or transistors on the long distance line amplifiers/repeaters they used, and ended up going with vacuum tubes. Why? Transistors use less power, are more reliable, than vacuum tubes, so it seems weird they would do this. The answer was at the time that vacuum tubes as a technology were old hat, they knew its characteristics, there was a ton of information and design around vacuum tubes that didn't exist with transistors, and that unknown was a big deal. Kind of like steam engines, vacuum tubes were going to be made almost extinct by solid state/transistor technology, steam was almost totally gone within 15 years or so of WWII, the vacuum tube was almost gone within 15 years of the discovery of the transistor in the late 40's, for the same reasons. That said, there were people during this time trying to improve the vacuum tube, and the same for steam engines, especially at the beginning of the transition period.
The S2 likely was similar to improving vacuum tubes, an attempt to compete with known technology they felt comfortable with, but diesels like the transistor proved to be too good in the end and rapidly outshone any attempt with steam engines.
