I think what motivated him to revert the FEV infection was the fact that it was beginning to have an impact on his cognition, with it projected to continue to decrease, not to mention the fact he didn't account for the fact he would lose a lot of fine motor control. After you cure him, I think he mentions he is mostly normal, so it is possible he retained some FEV side effects (like rad resistance).
In terms of the FEV cure, I think it was just part of their eventual surface reclamation project.
1) Plants that remove radiation from the ground
2) Synthetic organisms that are resistant to toxins/radiation
3) Possible way to cure mutated organisms that exist above ground
When combined all together, it makes perfect sense. Virgil was questioning the morality of the FEV research (specifically, the subject acquisition), and he was right to. Sean/Father was intentionally being secretive because he knew it was morally questionable how the research was being conducted, but he felt the ends justified the means, so he continued to push Virgil to continue his research, despite Virgil protesting the cost vs. lack of results.
I think that just goes to show the Institute wasn't evil and blowing them up is the bad ending, but it was beginning to tread and step over that fine line of morality. Sean pushed them forward a lot, but he did so at a human cost. Piper -hates- the Institute and pretty much emotionally breaks down if you help them win, but she publishes her paper later which explains that while she is wary of the Institute, she does trust you and thinks that as a result, the Institute can be a part of the Commonwealth. I think the fact that you run the Institute (if you choose to side with them) opens the possibility of trying to steer them back into a more moral line of thinking vs. what Sean was somewhat steering them into.