Hey moonsweeper... sorry I overlooked your question. I can only surmise why RCA made the choices they did. Honestly, I never heard anything from the engineer I worked with, a guy named Walt S., but since leaving that job, I have designed a lot of stuff and have been through the process a bunch.
Basically, a product design is an optimization problem. You have to draw a line around certain set of features and specs. Those are called design constraints. The area inside those constraints is called 'solution space', by some. Examples are the unit has to weigh X kg and has certain maximum dimensions. It has to cost $d or less. It has to have no zinc. (just an example). It has to be done by Friday. Each constraint sets up a huge pile of competing and interlocking decisions and getting just the right mix makes the difference not between success and failure, but between "hit the target" and "missed the target". Perfect products fail in the marketplace all the time. Imperfect products thrive for similar reasons. The main constraints in a product are if it meets a need (or eliminates a problem) and it is presented to buyers when they can buy it at a price they can afford and if the competing uses for their money are weaker.
Studio 2 met a lot of design constraints imposed by the marketing department. RCA was used to making a lot of different products. They had an established way of coming up with stuff to sell. I'm not privy as to what made them choose what they did, but remember, back then processors were expensive. RAM and masked ROMs were, too. Tooling plastic molds was really expensive. There were no/few success and failure stories to use for guidance. Engineers are good at solving problems, but very, very few are worth a damn when it comes to identifying markets. We suck for the most part in human factors and emo issues. A crying kid with a hurt knee needs a hug and a lot of engineers seek drying agents, dessicants and evaporating supplies for tears, if I might lump me and my brethren into a grossly inappropriate stereotype.
Color takes three bits per pixel. It takes a 3.58 MHz color burst oscillator and video chips capable of modulating the color info. Games have to move more data and make more decisions. Languages have to be more complex. More parts equals more failures/lower yields/decrease reliability. Monochrome is faster to market, even if it's not to sell.
In that era, Pong was popular. I think it suggested to RCA that the consumer would buy anything. More than that, RCA had a corporate culture that honestly did have some social aspects and they let societal factors influence corporate policy. Hence, the keypads..... Let's make this about education and interaction instead of just play! Bad choice, it appears. Texas Instruments would later make history with LED watches... (I worked there, too.) They essentially said to the consumer.. "No, you don't want chocolate, you want vanilla and here's why."
Tandy/Radio Shack was a Texas company, to answer your last question. That's probably why the game sold well down there. I have other theories, but that's the simple explanation.
Sorry to be so long winded. Gotta run!
Thank you for your response. No need to apologize, I appreciate you taking the time as well as your very thorough and informative response.
I have to say that you gave me a very good understanding of the business point of view in the design of the Studio II. Originally I thought, why on earth would RCA design it with black & white output only and equip it with keypads, but now it all makes sense. This was still a very new concept, components were expensive, so choices had to be made. Also, RCA wasn't in a position like Fairchild who were in the semiconductor business and could make all the parts in house and save money. Atari was sold to Time Warner in order to have enough money to release their console, so clearly RCA chose the only route available to them - cutting back to keep price within reason.
Also, as you pointed out, while it was quite the amusing exaggeration, the engineer mentality was an interesting component. Unlike, Atari who had experience from pioneering the arcade market, RCA didn't have that understanding of video games nor the insight as to what consumers wanted. I'm curious, do you recall what sort of advertising campaign RCA had for the Studio II? To date, I've only found old newspaper ads from Google News archives, but were there TV ads as well?
You mentioned that the keypads were likely selected so that the console could be marketed as more than a game system, that would make sense as to why it was called the Home TV Programmer - they were going for a more educational angle.
That Tandy/Radio Shack connection is intriguing. In case you're interested, I have attached the article. Interesting timepiece.