When I watched Episode 2 on DVD, I was as surprised as you might have been by John's disclosure that he was HIV-positive and struggling with the after-effects of a massive dose of testosterone. It was clearly distressing for all of the contestants, however Jonathan, Kelly, and I didn't know what had taken place.
Every week, just like you, I'm learning what happened day-by-day. The judges see only what occurs in the White Room and as we walk through the finished product -- we are clueless as to snafus that take place during construction or any behind-the-scenes drama. (In the White Room, Michael tried to justify some snarky moments more than a few times by shouting "Just look at the footage!" But the backstory is irrelevant, what's key is who succeeds at each particular challenge.)
John's dismissal was not because of his cantankerous personality or constant excuse-making. I think that he has true talent -- he wouldn't have been offered a spot on the show if he didn't -- but this challenge proved to be his floor-to-ceiling downfall.