Galah,
As mentioned earlier, I've only got the two out of focus photos to go by – you'd really need a proper macro lens to get it right. The drawing helps too though.
You are right in wondering why it didn't break further up where it was narrower.
Here's the way I see it: It looks like the first problem has been salt water ingress down to the base of the plastic sheath. That would have started the corrosion process. The area right down at the breakage would have been highly unlikely to ever dry fully, whereas further up, it would have been more likely to dry if stored for a while. Corrosion loves a damp, dark area that never dries out.. [}:)] Left to sit, ultimately the whole area would have become corroded and essentially turned to dust..
You will notice at the outsides of the break point, corrosion eating more into that area than further up. The drilled hole provided the final weakness at the break point.
Then there's forces at work too boys..

For the break, think lever arm and fulcrum; the greatest sideways stress would have been right down at the breakage point. If you imagine your bar ends as you crank a big turn the steering lines will exert a lot of sideways force in conjunction with the obvious direct pull.
Also, if you look at the eye that the back line attaches to in one photo and the drawing, you will notice it is offset. (strange design..) That in itself will exert a sideways shearing force even under a direct (straight) pull with no steering forces applied. Ultimately it was just a matter of time.
Phew! I'm off to bed now..

EDIT - Damn! I could have got an earlier sleep if I'd noticed Harty's reply before, instead of after typing.. Hey, it's late, I must be more tired than I thought

Sorry mate, didn't realise you already tackled it