Correct me if I'm wrong, but wouldn't a block button be easier to code in assembly?
Ed was one man coding the game, I think, so couldn't it have been simply easier to program?
Ed has also said that he watched and experienced the confusion of getting crossed up in SF, so he wanted
to avoid that confusion in Mortal Kombat.
Block button also increases the direcitonal input options for fatalities by being able to add the up direction.
Block button encourages aggressive play(theoretically) instead of encouraging people to constantly walk back. More aggressive play equals faster matches, which equals more matches, which equals more money. I say theoretically because MK1 and MK2 ended up still having turtling.
Block button also allowed them to handle throw prevention, which was another thing Ed has mentioned in terms of Street Fighter 2, and the "cheap" throws.
I also have to believe that a block button also made it easier to program the AI. Blocking reduces movement, and can be cross checked easier in the code(Is the button down or not). Less movement and a blocking opponent would allow the AI to go to work beating your ass and making you spend more quarters/tokens.