Suwari waza creates a very stable kihon form because it makes it so necessary to use your hips correctly - you can't use your height or weight advantage as in tachi waza. If you can do flowing forms in suwari waza, or even better hanmi handachi, then you will gain very strong stability in your hips as well as learning how to flow under quite difficult circumstances (shikko!). Suwari waza is a very important training tool, and I'm sure that this was O-Sensei's reason for emphasizing the importance of this training. Kokyu nage are high level techniques - in a sense they are O-Sensei's jiyu waza codified, or indexed so to speak. So if he felt that people were trying to train at this level but were not actually there yet, then I can imagine he would have been angry.
Suwari waza actually are harder (or, at least, a bit more complicated ) to do than standing kokyu-nage waza if you are training the internal principles. I believe that Ueshiba may have been upset at seeing the students doing standing kokyu-nage because he knew they were focusing on the throws and the fancy ukemi, and not on the aiki and IP principles that should have been driving their technique. If the students had been doing suwari-waza (nowhere near as acrobatic-looking ukemi as standing kokyu-nage), it would have looked more to him like they were earnestly training the meat of his art instead of the dessert toppings.