I am not commenting on whether it should have been a penalty or not or whether to X or S, but the TMO and ref did consider the original offside and commented that he started onside, as well as stating that the foul play would overrule as two separate statements. You can also hear the Ref saying to the TMO that he thought he jumped to catch the ball and was not jumping into the tackle. You have to listen for the Ref as the commentators are talking over him, but if you can dial out their noise you can hear it.
Ugo Monye makes his statement about having to jump to catch it at the very beginning before the replays I sense that they had a change of heart later as they discuss that there was nothing that the S12 could do to change the outcome.
Based on the above I understand how they got to the decision they did.
On a Saturday afternoon with no camera it could depend on exactly where the ref is standing as from one angle he is clearly jumping to catch a ball and then is taken out in the air, from another angle he is jumping, having control of the ball, so is jumping into the tackle, from the initial comment the ref could not see where first contact with the ball was as he was not sure if the ball came of white or black.