Funding was the symptom. The real reason was that it didn't fit in with the grand idea(s) of the day so it wasn't funded. There are several references to Rickover in this talk but they do the Admiral a disservice. One of Rickover's big complaints was that he couldn't get funding for exploring different solutions to the nuclear propulsion issue. As such, I think the Admiral would have supported the MSR concept for power generation as shown by his end run on congress with the Shippingport thorium "converter" reactor.
Despite the conditions in the Atomic Energy Act of 1954 (as amended), I always suspected that one of the reasons that the government pushed both light-water and breeder technologies was to have a supply of plutonium for military uses. Who would notice a missing kilogram or two every now and then?