I will give PADI the benefit of doubt and assume that they had explored the legal implications of online training before they launched their program. Besides, only the book portion of the training was done online, with final certification being issued by the dive shop. For example, you took the Nitrox course online, took an online comprehension test, and then went to your local LDS for instruction on using an oxygen analyzer to check the mix. Once that was completed, you got a c-card for 32% Nitrox. If you wanted a 36% card, you needed to do the two check-out dives.
My guess is that it was not as well received as they thought, and that is why they decided to drop it. I would also guess that the LDS's were not very keen on the idea and hassled a lot of students who chose this route. I guess I will find out, as I have finished the book portion of the Nitrox class, but still need to schedule time at my LDS for the hands-on portion.