Isn't this part of the law a regulation on nothing more than the appearance of the weapon?
Well, the military, who want their weapons to be assault weapons, use pistol grips, whereas skeet shooters (for example) who don't, use traditional rifle grips. Assuming that both groups know what they're doing, I suppose that there must be something about the ergonomics of the pistol grip that makes for a better assault weapon.
A pistol grip on a semi-automatic or automatic rifle, submachine gun or machine gun makes it easier to shoot someone at close-in situations than just with a stock without a pistol grip. Hence, one of the reasons this is used to qualify it as an 'assault' rifle. It is probably easier to use and more stable when used in a close-quarters gun fight i.e. a room by room sweep with a firearm without a pistol grip than with one.
The Navy still uses the M14 because a) it is still meets its purpose in providing force protection but also b) it is very expensive to switch out weapons for the entire fleet (though some commands have replaced them entirely). So it is a little of both. Is the M14 the most effective weapon we should use in close quarters situations. Probably not, it is a 60+ year old firearm, but we have to weigh-in cost vs benefit in replacing them. We do however supplament them with the M16 and other weaponry.
Edited by DevilsAdvocate, : No reason given.
"It is far better to grasp the Universe as it really is than to persist in delusion, however satisfying and reassuring." - Carl Sagan, The Demon-Haunted World