OK... here goes...
So we are talking about high-yield O&D pax.
LHR-KUL-SIN is liked by KUL-bound but disliked by SIN-bound pax. LHR-SIN-KUL is liked by SIN-bound but disliked by KUL-bound pax. Will there be more high-yield pax bound for SIN or will there be more for KUL? I'm inclined to believe SIN is more a high yield destination than KUL. I don't know if you disagree. Anyway, if you agree, there's still the question of how much more? I don't know, and won't know until I manage to see some figures.
Now we talk about high-yield pax going to Australia. Let's say SYD.
To this category of pax travelling with BA... which one is more appealing? LHR-SIN-KUL or LHR-KUL-SIN? The former... don't you think so?
BA would love to please everyone if it could and didn't have to choose. Passengers on LHR-SIN and LHR-SYD would be happy to see LHR-SIN-KUL. Passengers on LHR-KUL would be happy to see LHR-KUL-SIN. If you were BA, which one should it be?
OK... that's just one factor. Now you brought in the issue of passengers who will want to connect through LON to fly to KUL. I therefore mention passengers who will want to connect through LON to fly to SIN. Again, these passengers have one reason to fly to KUL, that is to disembark at KUL; but they have two reasons to fly to SIN - either to disembark at SIN or to connect via SIN.
At this point your argument might be: but look! there are so many flights to SIN already compared to KUL. KUL is terribly underserved. Just look at how full those MH and KL flights are. Are the load factors into SIN significantly lower? If it really is so, why is AF flying only into SIN when it might actually absorb the large spillover enough to also fly to KUL? Why is EK not having more than 4x weekly that fly nonstop from DXB to KUL instead of stopping enroute in DAC? Why does SR merely codeshare and not bring its own capacity into KUL? Why have none of these airlines actually acted to pick up the slack in capacity? Again, I have no figures to show but the behaviours of these airlines indicate some preference for SIN. Why do they prefer SIN?
You mentioned that the LHR-KUL-SIN would connect KUL to their SIN hub for onward connection. Who are the passengers who would benefit from this arrangement? Those originating from LHR? Certainly not. Those originating in KUL or chose to stopover at KUL? Yes. Are there many? What's the size of that market? Note that LHR-SIN-KUL would serve KUL-originating passengers wishing to connect at SIN just as well. Those who choose to stop over at KUL instead of SIN are more inconvenienced by the LHR-SIN-KUL (I always mean the LHR-SIN-KUL-SIN-LHR rotation and not LHR-SIN-KUL-LHR when I type LHR-SIN-KUL) arrangement, but only by one extra stop.
About diluting the SIN hub... that is because by choosing LHR-KUL-SIN over LHR-SIN or LHR-SIN-KUL, BA might miss out on yield from passengers actually wishing to disembark or connect at SIN. Back to the debate of KUL vs SIN, destination vs destination plus connection; or if you will, (destination+stopover) vs (destination+stopover+connection). Furthermore, airlines can, to a certain extent, modify their flow of traffic through intermediate points depending on what they market. If BA wants to offer KUL as a stopover, it will have to market it, which will, at some point, be at the expense of the SIN stopover offer.
I am not, as a consumer, against BA launching LHR-KUL-SIN if it so chooses. The greater the choice, the better, and I would be silly to complain. I am not even counting it out totally. Hey... with aircraft idling due to readjustment of another route, with a sudden interest in Malaysia or crisis in MH's operations, they might just put it to test.
I was just somewhat bothered by your reasoning. You just seemed to be changing reference points (e.g. starting with O&D traffic, and then suddenly pulling in connecting traffic to support your argument) within a single debate. That, or you were mostly seeing from the point of view of a LHR-KUL frequent flyer or KUL-supporter. Being concerned about the near monopoly on the KUL longhaul market and shortage of seats from time to time is fine, and I would be too if I were you, but it is unfortunate that it appears to overwhelm your evaluation of the viability of this BA service.