Seems modern scholars apply this rule (1.4.2) in a much narrower scope. The researcher argues that 1.4.2 is actually a metarule that applies to all of Aṣtādhyāyī. Covered near the end of the 1st chapter in his thesis.

The scholars did not start immediately misinterpreting it. For example, rishi katyayana who came after rishi panini in his commentarty correctly understands the rule but somehow later scholars started misinterpreting it and it carried to this day until rishi rajpopat went back to the original source and deciphered it correctly (such a funny coincidence his first name is rishi lol)

My guess is he said "always choose the latter" so they thought he meant the latter rule to apply rather than the latter morpheme to apply a rule.