Thanks for linking to that document on 567 history! I had never looked at it (and so far have only had time to skim).
(1) This is the source of the Kettering wisecrack about not recalling any problems with the dipsticks of the prototype 201 engines.
(2) Both the pictures and the measurements show that the EMD diesel engines were direct descendants of the earlier Winton gas and distillate engines.
(3) Note the role of the Navy. EMD's large two-stroke was only one Navy-sponsored development: the Fairbanks-Morse OP engine and the Cooper-Bessemer ancestor of GE's FDL were also developed in part for the same 1930s U.S.N. desire for submarine engines! General Motors was big enough and rich enough that, after the initial developments (201 and 201A) they were able to pursue two slightly different aims: a version of the engine optimized for marine applications (GM Cleveland Division 248 and 278, whose model numbers look as if they were a continuance of the Winton series) and a separate version optimized for railroad service (with a new series of model numbers based on displacement).
(4) So the 567C program was well underway in 1951, with test engines that could be photographed to illustrate Kettering's history. EMD's people, therefore, were in a position to be confident that the new version could be made dependable at a power rating higher than that of 1500hp for the 16-cylinder 567B engine.
(5) The F7 demonstrator set (459A-459B-459C-459D) tested on the Norfolk and Western was built in August 1952: too early to use the 567C engine, which was still on the test stands, but late enough that EMD could reasonably expect to be able to give a higher power rating on the production units they hoped would follow a successful demonstration. (In the event, of course, N&W didn't think the diesels represented enough of an advance for them to want to start replacing the Y6B quite yet…) (Ironically, the best source of information on the demonstrators I was able to find was another document on Utah-Rails: after the demonstration was over, they were sold to the Union Pacific as their 1481-1496B-1496C-1482. I ***think*** the plan had been for them to go to U.P. from the start, and that they were painted yellow -- but with EMD rather than UP lettering -- when demonstrating on the N&W. But the source wasn't explicit enough for me to be 100% confident of this.)
(6) There wouldn't have been any difficulty in up-rating 16-567B engines for 1600 hp. 100hp per cylinder was standard for the 12-567B in hundreds of SW-9 switchers, and EMD's MRS-1 road switchers for the Army Transportation Corps were also apparently rated at 1600hp -- probably to match the more numerous Alco-GE MRS-1. Probably EMD felt that the higher rating would, over a period of time longer than the planned demonstrator tour, lead to undesirably higher maintenance costs(*): at any rate, this seems like a reasonable motive for them to stick with 1500hp for the F7/GP-7/SD-7 rather than trying to match the horsepower of the Alco, Baldwin and F-M competing models.
Sorry to go on so long: I doubt anything I have said will really seem new to you.
Thanks again for the information on early 567C-powered locomotives!
(*) At least for engines subjected to a lot of continuous high output running. I suspect the nature of switching service may have made them feel that 1200hp was safe to offer in the SW-9, even though the 12-567B was rated at only 1125hp in the E-8.