This was a few years before Sweden joined the EU, but yes, I think the lack of a physical connection was one of the main problems.

From what I've read the test drivers also thought the car was too difficult to drive, with the joystick being too reactive. I wonder how much of that could be solved today with modern software and stability control tech.

I can't find it now, but I do remember a similar prototype with mechanical wires (not electrical) that was supposed to solve the regulatory requirements. That joystick looked more like a cyclic control from a helicopter.