Just stumbled on this thread. I believe at that time NYSW either owned the track or had trackage rights from the bridge over the entrance to Croxton yard south to Marion Junction as noted. That goes back roughly 100 years, I haven't been able to trace exactly how NYSW got it independent of the Erie. So with that section and the regular NYSW line north of the Croxton bridge, it could have been used as a bridge between PRR P&H as noted (at Marion Junction) and the New York Central West shore at Ridgefield Park. That was all Penn Central wanted - they might have abandoned or sold off the rest of the NYSW. They couldn't connect in North Bergen, where the West Shore came out of the tunnel under the Palisades (now Hudson-Bergen LIght Rail), because the Erie Northern RR was between NYSW and the West Shore there - but a few miles north at Granton, just south of Ridgefield Park, the Northern went under the West SHore and split away, so West Shore was then adjacent to the NYSW and in principle could connect to it (which is the case today where NYSW and the West Shore connect today - although the West shore is CSX).
The alternative for Penn Central, which they did in the end, was build the NAVE ("Newark Ave") connector on the east side of Jersey City, over by Rte 78, where the West Shore crossed the PRR P&H (the tunnel at Waldo) - the new section connecting the West Shore and P&H directly. So Penn Central wasn't willing to pay much I have read - basically up to the cost of that connector, and the deal didn't happen.
Somewhere along the line, maybe when NYSW went bankrupt in the mid 1970's, it did eventually lose ownership (or rights?) on the Marion-Croxton section, I believe, which ended up with Conrail. I don't know the details off hand. So Conrail eventually could make the P&H to West Shore link using the Marion Connection -- just 30 years or so (?) later than first planned. All lines were under different ownership, but the traffic still wanted to go coming into the northern NJ area from the south and west (ex Reading and LV lines now, not PRR any more), and then out north via the West Shore, and vice versa . Also, Conrail didn't have the problem of the Northern RR between the West Shore and NYSW any more since it also owned the Northern, so the connection was made to the West Shore at North Bergen. (With the line in the tunnel now the light rail, the West SHore line now has North Bergen as its northern terminus - and CSX ownership starts there.)
PS. With the new Marion connection finally made, and with the West Shore abandoned east of the Palisades for the light rail, the NAVE connection no longer exists.