The diminished diatonic chord in major keys (vii°) is considered unsatisfactory for many musical styles due to its dissonance.

Not true. In styles where it's not used, that's not because of its dissonance. I.e., they may not like the sound of it, but the dissonance per se is not the problem (those people might like other kinds of dissonant chords); it's the kind of dissonance, and its associations. It's too cheesy, too melodramatic, too old-fashioned.

In other kinds of music where you don't find it, the reason is probably because they've never heard of it - they play and compose in blissful ignorance of it. It's just not part of their language.

And in other music styles, of course, its dissonance is precisely why they use it.

IOW, you actually don't understand. Your obsession is skewing your understanding.

However, during the "extreme" cases the ii° is substituted by iv, creating i-iv-VII-III-VI-iv-V-i.

"Extreme"? That would be one of those pop sequences written by people who don't use half-dim chords either because they never heard of them, or because they think a minor iv sounds better then that strange jazzy ii°.
Rock music, remember, doesn't generally use 7th chords, it uses triads. And guitarists just don't like dim triads (if they ever encounter them). In that sense, the ii° might as well be a vii°. It's a kind of stupid chord. It's an awkward shape, and a "wrong sound" to boot. It's wrong because it's just not part of rock language.

i-iv-VII-III-VI-iv-V-i might be "awkward" in your opinion, or "botched" in someone else's opinion, but who cares? Why do you care? In the opinion of the people who write such sequences, they would probably find the ii° "awkward". They rarely even use ii chords in major keys - they'll use IV instead. Dm-G-C is too soft or jazzy. F-G-C is much stronger, more positive.
Hell, they don't even like V-I very much. G-F-C is much better than F-G-C.