Jeff, I think you hit the second of two reasons. First was the elimination of commuter service, and the second track was pulled up quickly thereafter.
With the southern end of the line then essentially single-tracked, the remaining line was centered in the tunnel under West Point, providing extra clearance as you indicated. But there's nothing other than initial cost, NIMBY opposition and increased real estate taxes that would prevent the line being double -tracked to the siding near the current Palisades Mall. I think the other potential clearance issues south of MP 20 are the curve in Harrington Park, and the west side abutment of the Erie overhead crossing in Blauvelt. Both are easily addressed.