SAS
No, there was no technical reason to dump the upper modes. Use of the upper modes/automation was a key area of training since this aircraft had transition down to a fix, auto-hover etc. However with hindsight I think that too much training time was spent on SAR-type training and not enough on normal and abnormal general flying operations. The Ops Man didn't specifically say to engage upper modes when there was a problem, though that was generally the culture in the company. Of course its now in the manual...
I think the very limited Simulator training these pilots received was an issue - there can be no doubt that Sim training familiarises pilots with how to deal with emergencies as a crew, something that cannot be learned outside the Sim other than by making mistakes.
The engine problems did not cause any loss of power, and to answer your question yes they had easy OEI stayup capability. There was some discussios about why they decended, but as far as I was concerned it was because they were getting close to De Kooy and it was time to descend anyway for a VFR arrival, engine problem or not.
I think EC were trying to prove that it was the AP hydraulic problem, they did some test flying with AP Hydraulics out / cycling and showed that control movements could be made to match those of the accident flight, however there were many other scenarios that could also fit, so it didn't really prove anything. Not quite sure exactly what question you are asking here.
Since that type of aircraft has a millions of flight hours without a reputation for control jams, I doubt there is an inherent design issue, but we can't be certain! Its frustrating that I thought there must be a connection between the engine issue and the control problem (that started only a couple of minutes after the engine issue) but none could be found.
HC