It seems like so much ancient history now, but I can offer what a former EL guy told me as it happened. And it really is fairly simple, as other posters have indicated.
Conrail was completely focused(obsessed?)with eliminating any competition that might arise as it pertained to The Port of New York. With the DL&W/EL/Conrail intact from Scranton east, another road, most assuredly The D&H, could obtain direct access to The Port of New York. The D&H didn't have the money to buy the ROW, but was interested in using the federal legalese that created Conrail to their advantage in obtaining trackage rights on the line. Before this could happen, Conrail scrapped The Cut-Off, and subsequently tore track out in The Poconos. And there it was - No track-No trains-No competition.
My old EL friend, and countless other EL men, were livid that Conrail was allowed to do this. But that was the sad fact, they could do it, and they did.
As an afterthought; I'd strongly suggest that if Conrail hadn't eliminated The Cut-Off, passenger rail from Hoboken to Scranton would've been restored, and maybe as long as twenty years ago.