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It's not for isolation when all the devices are on, but rather for
when one of them is off. If there's more than one device hanging off a
single encoder, then they must all be isolated. Otherwise, turning off
the transponder could pull all the lines low, and kill the encoder signal
for the GPS as well.

Depends on what the design of the interface on the various units is.
There's no reason why shutting off a transponder should cause it
to sink current enough to hose up the GPS even without diodes.