The main reason the DHFS Squirrels did not live winch was because the release to service did not permit it: however, that could also be because Boscombe Down (who did the clearance) were not asked/tasked/funded to do so. All we did was to introduce prospective RN pilots to the problems of hovering over the water whilst trying to respond to the patter (con) from a crewman to recover a buoy from the water.
Having said that, the breaking strain of the winch cable was quite low (I can't remember the exact figure now), certainly less than the Whirlwind, and I would have been somewhat concerned to have people on the end of it. I suspect the RAN and others have a better cable fitted, although somewhere there is a video of a South/Central American Squirrel lifiting 2 survivors and the cable breaking.