The Diesel/Battery Hybrid option was dropped when a decision was made to change the configuration from power generation in the end driving vehicles (as originally proposed by Hitachi), to the underfloor multi-engine configuration that has been ordered for production trains.
Unlike the Hayabusa HST test train, where the batteries were accommodated in an adjacent vehicle to the Class 43 power car, the production model would have placed the batteries in the driving power car with the diesel generator and electrical power equipment.
This made for a very heavy vehicle.
As one of the IEP criteria was a weight reduction (less wear on the track), I don't know if this played a part in the decision to change?
Another factor in the change of configuration, was the announcement that the GWML would be electrified after all.
At the time of the IEP bids, the prospect of electrification of the GWML had been put off way into the future. Effectively cancelled TFN and the expectation was that the GWML IEP trains would only be all-diesel (two driving power cars), or rather Diesel/Hybrid in the case of Agilty Trains' (Hitachi's) winning bid, with the all-electric and Bi-Modes only going initially to the ECML.
Following the about turn and announcement on GWML electrification, the resulting situation meant part electrification of the Great Western. Therefore in addition to all-Electric trains, Bi-modes would be going there too and the all-diesel version was completely dropped from the programme. This then raised the question as to whether the original Bi-Mode (one power car) had sufficient grunt to do the job off the wires.
The result was a change to multi underfloor engines and the end of the Diesel/Hybrid proposal as the heavy batteries could no longer be accommodated. As Edwin says, there was also concern about carrying around the extra dead weight of the batteries.