Interesting. Why would it need grade separated junctions on the approaches to Waterloo? If you - say - took the metro services via Wimbledon as the ones you run through: Those trains all happily coexist on one track each way west of Waterloo and wouldn't need to cross each other's paths if they were extended. (And I have a suspicion there will be fewer of those trains once Crossrail2 is built as well).
Fair point about more people going to Charing Cross. I would suspect however that a lot of those people are actually changing onto the Northern or Bakerloo lines, and are doing so at Charing Cross because that's a shorter walk than from Waterloo East. If, in this hypothetical project, the new platforms were in Waterloo Main (with Waterloo East being closed), then those people would simply head for the Underground at Waterloo with no inconvenience. (Though there would then be another question about capacity on those lines between Waterloo and Charing Cross, and of course you still have the problem of people going to Charing Cross because that's their final destination, or they want the District/Circle lines).