Having a Legendary Pokemon seen in battle wouldn't be quite as shocking as having one wondering in a city unprovoked. There's a little bit of a difference there. Also, there may have been issues with having the Pokemon sprites appearing in the 3D cities, not saying that was the definite reason, but it could have been a factor in cutting the feature. Again though, this was a minor feature and though it was a nice one, it doesn't make the games any worse or better by having it or not having it.
I don't think that having Pokemon sprites appearing in 3D cities would be trouble because HG/SS cities were already 3D-ish. In HG/SS there are also full 3D places like part of Olivine Lighthouse in which Pokemon sprites appear without any trouble.
I think the main reason why this feature was removed is because B/W are first games of new generation and those games always have some features removed. Like I said, this feature is very likely to return in gen 5, just like Gym Leaders rematches, full Battle Frontier and maybe those touch screen features from HG/SS.