That should be seen as an opportunity not an obstacle. Using the Eglinton-Danforth-McCowan alignment, facilitated by the E-W orientation of the BD subway at Kennedy for a subway extension, allows the RT to stay in operation right through the construction period. This alignment would not interfere with the SRT except at the teminii (and barely at that).
Hydro corridors are probably the cheapest pieces of land to build on. They require no grade separation (except where roads cross the corridor, which along this corridor is only major streets, certainly not like Yonge north of Bloor). Only the short stretch along McCowan into STC and the extension northeast from Kennedy would need to be tunnelled. The costs of this would be only slightly more than ripping out all the SRT tracks to upgrade them for the new trains, and having the extension from STC to Malvern being at-grade reduces costs. Spend a little bit more on section A, spend less on section B, it comes out to about the same. For those going to/from Malvern, you aren't gaining or losing a transfer, you're just changing where it is. For those only going to STC, you have a transferless ride.
Doing it this way also opens up the possibility of interlining the Sheppard East LRT with the SLRT extension (assuming the Sheppard subway is extended to STC). Instead of having the SELRT terminate at Agincourt, have it terminate at STC along with the SLRT. Grade separate that short stretch from Sheppard to STC if you really need that extra capacity, because guaranteed it'll still be cheaper than building 1 line to STC and 1 line to Agincourt.