Any extra weight is going to affect the flight characteristics of an aircraft, the question is, by how much, since the position of the extra weight also has a bearing on what it will do. On the AVRO 504, the front cockpit is well forward, actually under the trailing edge of the wing, but that it still behind the centre of lift and the CoG, so it would probably be slightly detrimental to stability as well as affecting the wing loading, and directional control on the 504 can be tricky anyway, because of the rotary engine. The other problem is that the 504, like all WW1 aircraft, is very draggy, and so that is going to have a big affect on things if you have to counter a larger weight for anything other than circuits and bumps.
The AVRO 504K would be what one might call stately or perhaps majestic in terms of aerobatics, with loops and such being very ponderous, but requiring a good deal of well timed energy management to get up and over the top of the loop. If you have seen the film 'Reach for the Sky', you can get a good idea of what the thing is like in the air, as there is quite a bit of aerial footage of the 504 in it, and you can also see that in spite of it being a relatively early aircraft, the 504 has quite a high approach speed, Vref (i.e the threshold speed) being well over 50 mph.
Having said that, I fly aerobatics in gliders, and if you know what you are doing with regard to energy management, you can get pretty much anything up and over into a loop, even without an engine, provided you have enough speed on entry and you don't hang about. But I don't imagine a 504 with three people on board would be a piece of cake to loop neatly, and if I was going to try it, I'd want plenty on the clock before I hauled the stick back.
For more details on what the 504K handles like, here is a pilot handling notes report you might like to read (this incidentally, is about the exact same aircraft which was used in the filming of Reach for the Sky):
Historic Aircraft Association :: representing the interests of historic aircraft owners, pilots, engineers and display organisers
You have to stand next to a 504 to really appreciate just how bloody big the things are, it's vastly larger than the average WW1 single engined aircraft, for example, fellow forum member Terrence Jones and I were looking at one yesterday, which was parked next to an AVRO Avian, and the 504 absolutely dwarfs that thing despite the Avian also being a two seater more like the size of a typical WW1 aeroplane, so the 504 ain't no Pitts Special LOL
It is somewhat telling that various version of the 504 were used with the second crew member being swapped out for extra weight capacity, so the design certainly does benefit in terms of flight characteristics with the weight carefully considered, but then again, the original prototype 504 got off the ground at Brooklands when fitted with just a 35 horsepower engine, although in fairness, that was somewhat different to the later models.
From the report you quoted, it sounds to me as though the pilot has been too ponderous on the controls whilst going up into the loop, with too little speed on entry, perhaps forgetting that the extra weight would affect things going up in the loop, and consequently, has run out of energy before making it over the top of the loop, stalled and then nose dived almost into the ground before getting the thing under partial control. The good thing about that however, is that the extra weight doubtless meant it accelerated up to flying speed a bit quicker and in all probability also pitched it nose down a bit sooner off the stall.
Al