Q: why the automatic system dilly-dallies and does not automatically pay up once the 120 confirmations are there?
I have some wallets that paid up and some that didn't regardless of the amount of btc there (way above the cutoff).
Not 100% sure what you're asking. The pool side doesn't much care about confirmations. As long as confirmations on a block (or more specifically, a payout transaction) remain > 0, the pool is happy.
Once a coinbase/generation payout reaches 120 confirmations (100 in some clients) then it is spendable. Eligius has no control over this and it's up to the user's wallet to make it spendable at the right time.
As for blocks that are failsafe blocks (like the few that happened recently due to my recently trigger-happy failsafe mechanism) those pay one or more of the pool's offline wallets so that those funds can be used to manually pay towards the payout queue later (once those coinbase transactions are spendable and the failsafe condition is corrected). In the meantime, and even before those blocks reach 120 confirmations, the payout queue simply grows by a block and continues to do payouts on a balance-age basis, with the oldest balances paid first. Once you get a payout, you end up on the bottom of the list. If you've been working towards a payout for weeks and cross the threshold you get inserted into the payout queue at the appropriate spot for your balance age at that time.
The payout queue is very dynamic and is constantly changing based on current estimates pool-wide. At any moment a miner who's been working towards a payout for weeks could jump to the front of the queue with their weeks old balance. Also a miner in the queue due to their estimated balance being over the threshold could pop out of the queue if they stop mining during an unlucky round and their estimated balance drops below the payout threshold. Lots of things going on there.
If you reach the minimum payout, and your last payout was more recent than others in front of you in the queue, then your payout can be delayed by several blocks. Meanwhile the payout you're preparing for grows beyond the minimum payout and is accurate for when you do either reach the top block in the queue or a manual payout is done. (Manual payouts do not include estimates for the next block, obviously.)
Since Eligius has a minimum payout amount it's possible (and likely) that not all miners will have reached it every time the pool finds a block. In aggregate, these amounts accumulate in the offline/cold wallets and slowly grow the payout queue over time, even if there are no fail safe blocks. A manual payout is done to catch up the queue when it reaches a reasonable amount. Even though the miners not reaching the minimum payout aren't being directly paid by each block, they can still enter the queue and be paid by the next block after they reach the minimum payout.
The minimum payout is important because it would be impossible and silly to pay every miner tiny dust payouts every block. Even if having a coinbase transaction that allowed 2000+ outputs were feasible (it isn't, much over a couple hundred breaks most mining hardware) it would be crazy since miners would have to pay huge fees to spend their earnings when they combined hundreds of dust input coins in a transaction.
Hope this helps.
Edit: Honestly, it's not as complicated as it seems...