Why had Wu Yu taken the Universal Holy Gourd and not returned it to Prince Diablo?

That was because the Universal Holy Gourd had huge utility in battle. The limitless transformations were exactly what Wu Yu needed.

For example, just as the meteoric waterfall was crashing down, the Heaven Devouring Avatar made its move from behind Wu Yu. The Universal Holy Gourd billowed thick smoke. The black fog seemed to have a life of its own, rushing between Wu Yu and the meteoric waterfall as it transformed. It solidified into a wall, slanting to Wu Yu's left. As the meteors were molten, they rolled along the walls and slid off at an angle to Wu Yu's left!

Of course, this had all happened in an instant, tanking a hit for Wu Yu. In the next instant, the wall crumbled into ashes, but Wu Yu was already past that area. The Somersault Cloud had been fused into his body. The third tier, Fulgurating Shadows, was in his body. His striking speed had been enhanced manifold, and the Silver Qilin was unable...