With a roster that size, being able to morph on the fly during matches into any kombatant could end up causing some serious mid-match loading, especially if it has to load up all the skeleton stuff. Even when installed onto my 360 HDD, The Shang Tsung ladder match takes noticeably longer to load up. I suspect it cherry-picks two or three fighters while loading, and loads their data as well specifically for CPU Shang Tsung to morph into mid-match.
Having said that, I really like the new morph. It's got a pretty good range, I love the damage boost, and it gives Shang Tsung a ridiculously high potential (or skill cap) during matches, especially since you can pull off one of his kombos into it, and then kombo straight into something from whoever you morphed into. Takes a fair bit of practice though.