1) Much of the system is very old, some of it dating back to the 30s. Replacing those parts is very complicated, it's not a 1:1 process. The improvement comes because new signals work under different assumptions. The current signals are basically automated versions of people standing with flags. Partially interfacing the old with the new is very complicated.

2) Downtime basically shuts down the city. Even nights and weekends interruption in service causes major disruptions. The surface streets are at maximum capacity, there is no way to get that many people in and out of downtown and midtown without the subway.