The point is basically, you can't pull the chip from the board without killing the contents on it. The encryption tables are stored inside the customized processor in a bit of ram. To rip it's contents the pirates would need to either 'open it up' and read the table manually via a electron microscope or something, or analyze it by running a special program (trojan) on it. For both options one would need the chip without the rest of the board, hence the suicide battery circuit.
It probably seemed like a good idea then (probably worked for a little while), and yes, arcade games have a 'life expectancy' of about a year, because you need a new game every now and then, the system was already written off and also wear and tear ofcourse.