It also will not properly represent the grain or sharpness,
Wouldn't you think that the technology would improve with continued R&D?

and lastly, its digital.
Yes, but it's also Kodachrome -- which means that there'd suddenly be a much larger market for Kodachrome. As I recall from the original articles about the ASF machine, it only took up a couple of square feet of floor space, and didn't need a water supply or drain. It used a goop-style developer similar to the stuff in the Polaroid pods (as I recall), and the film was scanned as the image formed, and then, the film was spooled up (each roll spliced to the previous), to be collected for recycling (silver recovery) when the machine was serviced every so often.

The customer would put his roll of film into the machine, which would then process and scan it, and then give him his images on CD and/or prints.

The intended market was people who needed their stuff fast, and it could be deployed to locations that could not support a minilab (no technician needed, etc.)

A machine like this, with the ability to turn every camera into a defacto "digital camera" (a digital camera with a very wide variety of "sensor upgrades" available to the user), could have extended the life cycle of silver photography indefinitely.

I think it made perfect marketing sense for an "all-digital" company to buy the rights to that sort of disruptive technology and ensure that it did not come to market. That's what I would have done if I was on a mission to supplant traditional photography with an "all-digital" replacement.