One of the reflections I've had is that a child born abroad to a Canadian diplomat, for example, having had experience outside the country is, as we've seen from your example and from many other examples, more likely to be much more international in their outlook and possibly to find a spouse or partner who is of non-Canadian origin, and to therefore have kids who may be outside.... So I understand the fact that we're extending it one generation, as if the parent who had children while abroad while serving the government is treated the same as if they were in.
However, that second generation cut-off will apply a generation later to the descendants if they continue to live outside the country, which seems extremely reasonable.