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My understanding is that it got fatally compromised as either a 3 letter agency or the pentagon wanted to use it for satellite maintenance/retrieval. Never happened, but it still resulted in a hybrid design that was basically suitable for neither. In the end it may well have continued flying as a kind of "national pride" issue.

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> a 3 letter agency or the pentagon wanted to use it for satellite maintenance/retrieval. Never happened

I think they did do satellite maintenance from the shuttle a few times, most notably on the Hubble telescope.

Speaking from memory, but AFAIR the biggest impact of those military requirements on the Shuttle design were coming from the "nonstandard" orbits and orbital schedules those missions would require.

The Air Force requested the ability for the shuttle to take off from Vandenburg Airforce Base, go into polar orbit, and then land back at Vandenburg at the end of that one orbit. This required that the Shuttle have ~1000nm of cross range (that is that once it deorbits, it needed to deviate from its ballistic path by 1000nm). This required big ass wings (which the shuttle got).

The Airforce also helped drive the payload (weight and dimension) requirements, but I feel that this is secondary to the cross-range requirement.

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