I recall reading (Cinders & Smoke??) or hearing that the tank above M.P 494 was heavily damaged in an avalanche in the early 20s. I would imagine it was deemed unnecessary to repair and thus dismantled. What was left anyway..
When did the town of Silverton begin installing a city water system? The smaller (also saturated) locomotives of the early days probably needed the tank at Deer Creek in order to do their required work in town and return without running out of water, especially if they didn't have a reliable source of locomotive water in Silverton. We essentially use Needleton Tank in the same manor today - Top off there on the way up and you have just enough to get to Silverton and return. Anything too out of the ordinary from that and we feel much more comfortable topping off in Silverton using the hydrant near the depot. Obviously our locomotives have a much larger water capacity and are more efficient (super heat). I've heard that the Silverton Northern engine house was plumbed for city water, but that's the only dedicated source of locomotive water in town that I know of. Maybe the SG&N enginehouse had a similar arrangement?
I guess what I'm getting at is that the tank was probably initially needed, but as things progressed in Silverton (Three railroads built and a water system installed) its need declined. Combine that with being heavily damaged during an era when the railroad was spending lots of money on capital improvements such as larger super heated locomotives, I wouldn't be surprised if the RR deemed it expendable and substituted the tank for the much cheaper flume and spout set up below M.P 492 (Whitehead Gulch) for emergency/occasional use.
-Jon