The least hypothesis is that the "good" version of Racter that supposedly composed the novel never existed, and that it was all a hoax made up by someone who wanted to bask in some publicity and sell the Racter that actually got released. As you say, the output is suspiciously good for something they insisted was accomplished on a home computer of the era and, oh no, they can't release the software that did it for Reasons... yeah, pull the other one, it's got bells on.

Also, this is interesting:

https://electronicbookreview.com/essay/constructing-the-othe...

There is little evidence of The Policeman’s Beard’s process of production, likely due to its digital conception, as well as the normalcy of its creators. Chamberlain and Etter were two friends, with the former an amateur computer enthusiast and the latter employed as a computer programmer; neither felt it necessary to document production. Further, all of the referenced sources focus on Chamberlain, and Etter’s name has virtually disappeared from any record of activity since Racter. Even then, his name is mentioned only once, and between commas, in The Policeman Beard’s front matter. There does not appear to be any photographic evidence of Etter (while there is plenty of Chamberlain), nor evidence of additional contributions to any technological field. There is, frankly, no convincing evidence for Thomas Etter’s existence other than a few quotations attributed to him in news articles about Racter, and assurance from Chamberlain himself (correspondence with the author, who also confirmed that Etter is now deceased).