Quote: "How is the steam being "lost" to "work" by being condensed into water?"
Thermal loss. And it's an area of major concern.
All of this wrangling over valve events will soon fade into obscurity when you start running your steamplant.
Remember this as it is very important and it is the key to efficient plant operation:
Temperature and pressure go hand in hand. Think of temperature and pressure as two meshed gears with equal teeth, if the RPM of one is known, the RPM of the other is known. If temperature is being lost, pressure is being lost and vice versa.
Ideally there would be no pressure lost all the way to the exhaust event, but it's the real world and unless one employs some sort of cylinder heating nothing close to that is going to happen. Unfortunately, most of our engines use the same passage for steam admission as they do exhaust, The passages are continually being heated and cooled and somewhere in between is a mean temperature resulting in a Mean Effective Pressure or MEP. As the steam expands in the cylinder the pressure drops, as does the temperature. This is why the Unalfow and L-head poppet valve designs are more efficient designs, steam admission is through one port and exhaust is through another, this helps maintain a higher MEP equaling more work for the same amount of steam consumed and maintained.
It all starts at the fire. and ends at the engine exhaust stroke. Running a small plant is all about generating an ample amount of steam and minimizing the loss all the way to the exhaust stroke.
On our little steam carriages we have a leather apron or curtain that hangs down in front of the engine and boiler. Driving down the street, if the apron is pulled up, the car slows down a bit, drop the apron and it speeds back up
P.S. Why did the Navy say one thing in their manual, and wind up with engines that contradicted it? Who knows, probably a case of purchaser and manufacturer unaware of what was in the manual. What they wrote in their manual made perfect sense.