You're wrong on both counts. Well, sorta. There are laws that prevent use of diesel in certain areas of Manhattan- inside Penn, and GCT as well as the North River, East River, Empire, and Park Avenue tunnels.
You know, for the longest time I have been looking for someone who has actually researched this subject and can provide actual references to the legal restrictions. Looks like you have done the research. Would it be possible for you to provide some cites to the actual laws that specify these restrictions? I have heard so many conflicting reports on this issue from so many seemingly knowledgeable people that I have developed a certain need to lay the matter to rest once and for all, but haven't had the time to research it myself. Hoping that you can help. Don't feel bad if you don't have any cites to back it up, since the last two dozen people who made claims on all sides of this issue did not either.
All I could find was New York Law RRD §209 Change of Motive Power which technically only outlaws steam. Perhaps case law has prohibited diesel in addition, but if so, I was unable to find in in a brief search of case law.
§ 209. Change of motive power authorized. Any railroad company having the right to use any railroad now constructed in any public tunnel, road
or way depressed below the surface of and wholly within any public park in any city within the state of New York having a population of one
million five hundred thousand or upwards, may change the motive power and operate any such railroad by cable power, underground current of
electricity, compressed air, or any other motive power other than locomotive steam power that may be consented to by the authorities
having control of such park or parks, and by the commissioner of transportation, and may make changes in the construction of the road or
roadbed or other property made necessary by the change of motive power. Such reconstruction shall be at the sole cost and expense of the
railroad company making such change, and when completed such improved railroad shall be the property of the municipal corporation having
control of such public tunnel, road or depressed way.
My understanding from admittedly limited sources (history channel show or two) is that originally there were steam locomotives in the tunnels until a train collision with (iirc) some deaths and the tunnels went straight to electric since diesel was not in use at that time. Extrapolating wildly from that, perhaps since the electric was already there it just became a defacto rule as it was a good idea that seemed like a law.