in this post:

Results: Launch conditions were 46,000 feet and 120 knots. Motor light off occurred 10 seconds after release and the vehicle boosted smoothly to 150,000 feet and Mach 2.5. Subsequent coast to apogee of 211,400 feet. During a portion of the boost, the flight director display was inoperative, however the pilot continued the planned trajectory referencing the external horizon. Reaction control authority was as predicted and the vehicle recovered in feather experiencing 1.9M and 3.5Gs. Feather oscillations were actively damped by the pilot and the wing was de-feathered starting at 55,000 feet. The onboard avionics was re-booted and a smooth and uneventful landing made to Mojave.

SpaceShipOne was flying in a very nose high attitude towards the end of the burn. Without the flight director display, Mile Melville would've had to keep looking at the horizon through the side windows. That makes it harder to maintain an accurate flight path. The flight director display would've given him orientation in all three axes. If he only looked out of one side window, he might've been able to get some idea of pitch and yaw, but he would've had to look out of both sides to get an idea of his roll attitude. Combine that with the very thin air and the need to use attitude control thrusters and it isn't too hard to understand those oscillations.

Given that he probably was pretty far off of his planned trajectory, I wonder how high he would've flown had the instrument not failed. I suspect he could've gone quite a bit higher, perhaps a few miles.