Is that really accurate? Wasn't the 700E a scale engine? Additionally, Lionel used the term Standard O for items that were 1/4" scale back in to the MPC era of not earlier, AFAIK.
I think that's one thing that limited Lionel and the 3-rail hobby, in that it wasn't always clear what you were buying.
Yes, the scale Hudson is a well known exception. And the Standard 0 cars introduced by MPC were always referred to as such. And I've read that they were a initial disappointment in sales for MPC. And by today's expectations, for the true scale purist, that's not what they looking for. And these productions were the exception, not the rule. In 1952 alone, Lionel sold 182,000 operating 027 milk cars. Even today, the best selling items for Lionel are the non-scale traditional train sets.
But the VAST majority of Lionel product over the decades has been as I mentioned. Lionel product was categorized for years as "027" and "0 Gauge." So a larger engine that didn't negotiate an 027 curve, was under the "0 Gauge" line, but that didn't mean it was scale proportioned by any means.
During the Richard Kughn ownership of Lionel, they started using the terms for their catalogs, "Traditional" and "Collector Lines." But that was more reflective of product quality and price than it was proportion and size.
As a side note, what's even funnier, is to read the product descriptions in postwar catalogs and to read phrases like "just the real thing." To the purist today, the post war air whistle is hardly like the real thing. Nor is the 027 plug door box car just like the real thing.
The odd thing is, some products were close to scale in their general proportions. The postwar GP-9 has a shell that is very close to being scale. The K-Line MP-15 also has a shell that is very close to scale proportions. Yet compare them to current high end scale models, and they don't cut it at all for that particular buying market.
But this is all because years ago, these trains were really toys that were marketed to boys via their fathers. Today, it's different. There are lot more options, and therefore a lot more confusion. The true scale products, though there were some before, didn't really increase in a big way until Lionel made the move to China, where the overall lower production costs would allow them to channel more investment dollars into scale product tooling.