Why did / do ticket machines refuse to accept 5 cent coins ?
For the same reason that they don't accept notes - the government made a decision that the potential losses associated with refusing legal tender were less than the difference in costs they would face for more complicated vending machines which would accept all legal tender.
The only option they would have for having their cake (retaining the ability to refuse some forms of legal tender) and eating it too (requiring all tickets be purchased) is to completely rework the system so that payment is required before travel at all stations rather than just Adelaide and on occasions at Noarlunga and Salisbury. Legal tender rules only apply for payment of existing debts (e.g. paying for a ticket after boarding a train) and not to purchasing products/services before they are delivered.
Under the current system, they will never prosecute a passenger whose legal tender has been refused. They may try issuing expiation notices or taking personal information as a form of intimidation, but they will drop the case if the passenger opts to be prosecuted rather than pay the expiation. Such a persecution would be laughed out of court and the word would quickly get out that tickets have effectively been made optional so long as the passenger wishing to ride free has a $20/50/100 note or multiple $5/10 notes in their possession.
Not having the facility to take notes does not gain them revenue, in fact it only loses them revenue. No PSA/Transit Police are going to expiate a patron with notes who cannot purchase a ticket/recharge.
It hasnt been recent, but many a time Ive seen people forced to walk up and down the train to beg people for change because all they had was a note and the inspector was going to fine them unless they bought a ticket. The policy switched when they put gates in at Adelaide.
If you see this happen, take a photo of the inspector* and inform them you will be taking your complaint to management.
They know that this behaviour is not permitted and that their threats have no legal basis, as evidenced by them almost certainly refusing to show their ID if requested or trying to avoid being photographed. It's just plain bullying - notice that like all bullies they will only pick on people who can't carry themselves confidently in public they see as easy targets - and is almost certainly illegal behaviour.
* as authorised by the notices inside the doors reading "images and sound may be recorded and used"