This is certainly possible. But, a) transit on that section of Finch West will still run in mixed traffic and remain dependent on congestion,
Until Phase 2 of the FWLRT is complete, this will be the case anyway. And even when the FWLRT is finished, in order to cross Yonge they would need to transfer onto a bus there. And there's nothing stopping the TTC from putting in the occasional queue jump lane to get things moving a bit quicker if needed.
and b) riders who want to get to Finch / Yonge, or continue north on Yonge, will have to either transfer to the bus at Keele, or take an LRT detour south via Dufferin and Shepprd before going back north.
But how many people taking the Finch West bus currently end their trip at Finch & Yonge? I would guess a very small amount. Most of them are transferring and taking the Yonge subway southbound.
Basically, by diverting the Finch line south to meet Sheppard, you are making life easier for those who want to go across Yonge, but harder to those who just want to reach Yonge. And I am not sure that the first group is larger than the second group.
If I remember correctly, the plan for the FWLRT had it at-grade until just before Yonge, and then dipping underground, correct? This would mean that it would still be subject to some delays on Finch, especially between Bathurst and Yonge. Taking Sheppard West, 1/3rd of which would be in a tunnel, would probably end up being a wash compared to taking Finch. The diversion down to Sheppard is only an extra 2km of track, yet a significantly higher percentage of that is tunnelled.
And diverting down to Sheppard I don't think is a big deal anyway, because most of the riders transferring from the bus to the subway at Finch are going southbound, at least as far as Sheppard. Whether you go over and down, or over, down, and over again ends up pretty much being a wash in the end. So that covers the "getting to Yonge" group. As for the "getting across Yonge" group, you have the Finch East bus which would cross Yonge, and a complete crosstown LRT. Far better than having 2 RT lines end at Yonge 2km apart.