I hear it's because it would be difficult to load that extra character model. I also heard that the reason Spinal was given the other character's Enders in KI1 is because the game was running low on data, which prevented the developers from giving him his own Ender animations.
The fact is with 2D games and gaming system of the nineties, changing the sprite of a character for another sprite or any other thing from the game data did not need ANY LOADING TIME.
(for cartridge games let's be clear)
So it was not a problem for a character to have as many sprites as they wanted and even to morph like Spinal in KI or Shang Tsung in MK.
If Spinal could morph in ANY other members the cast, it would mean the game has to load every other character models at the beginning of every match to avoid loading time during the fight.
That would be a problem, BUT, it's not the case, he can only morph into his opponent, which they did prefectly in MK9, so i assume we have many possiblities here:
-They didn't wanted to copy all his moves from the previous games
(VERY UNLIKELY considering they took most signature moves from all the other characters).
-They were too lazy to put those moves into the game.
-The morphing caused a loading problem they didn't had the time/didn't want to resolve.
For the "running low on data" reason, i don't know if it is right or wrong, i would like to know if the black and white sprites and all the color variations of characters are different sprites or just color modifications of the original sprites.