From what I remember as I watched WCW 1998 some time ago, it was really all about "swerve", and no good reason was ever given, and really nothing came out of it. One of the most illogical and worthless nWo turn of the bunch, but they thought they that had to keep the angle "fresh" with new people at this point.
Yeah that was the real reason obviously. On screen Dusty briefly said he was sick of the "Yes men in the back."
And he was back out of the nWo by the end of the year anyway after IIRC screwing Barry Windham (was he in the nWo or not? Or was it a weird Bret Hart associate member thing?) in a match against Dean Malenko that he refereed because "DUSTY RHODES STANDS FOR TRADITION!" as Schiavone reminded us all.