Well, they call it expensive and it undoubtedly is, but what do accidents like this cost? It seems basic enough to say two trains shouldn't be in the same location, or "there is another train approaching the crossing that's 2 miles in front of you".
I understand that this crossing has no local operator, but surely there are signals--with occupancy detectors.
To explain how an automatic interlocking works, let's imagine two routes cross each other. One is a north-south route and the other is an east-west route. There are signals on all four sides of the diamond and a signal in each direction (usually no more than 2 miles) away from the diamond.
The section of track between the signals at the diamond is called interlocking limits and these four signals at the diamond are called interlocking signals. The signals farther away are called approach signals, but if there is no signal system on the route other than the signals at this interlocking, the approach signals would be called distant signals. There are five blocks here: one that includes the diamond (interlocking limits) and one in each direction (north, south, east and west approach blocks).
These eight signals are all connected electrically and work in the following way. Say a southbound train is approaching the interlocking and passes the southbound approach signal. As long as there are no other trains in any of the other four blocks, the signals for the southbound train's route show proceed indications while the approach signals for the opposing northbound, eastbound and westbound trains show yellow and the interlocking signals for northbound, eastbound and westbound trains show red.
If there is already a train passing through the interlocking or another train has entered one of the approach blocks first, the second train will see a yellow signal at the approach block and a red signal at the interlocking.
Just as you have suggested, these interlocking and approach/distant signals are controlled by what you and I think of as occupancy detectors. It's basically a first-come, first-serve system. If one train is there first, the other one sees a yellow signal at the approach block. By the rules governing this particular UP interlocking, the train seeing the yellow signal must approach the next signal prepared to stop and if exceeding 30 MPH, it must reduce speed below 30 MPH. If the train passed the approach signal at 25 MPH or less, or after passing the approach signal speed was reduced below 25 MPH, the train must approach the interlocking prepared to stop.
If a train is approaching an automatic interlocking and the signal system is functioning properly, and the train crew is following the rules, there shouldn't be any problems. I prefer manual interlockings, where a human controls the signals, but as long as the rules are followed, automatic interlockings work fine.