I would say the idea probably occurred to Joss somewhere in the middle of Buffy, but by that time he'd made Giles too "safe" to turn him into an outright villain so he just filed it away for future reference.

Good point, I hadn't quite thought of that. LMPTM hints at darker possibilities, but only just. (And then playing with "Giles as the First" to tease the audience but that was a complete throwaway.) Perhaps ME lost "the courage of it's convictions"?