[guided]The theorem is stated with the exact local reduced normal form needed for the energy argument. Thus no global claim about all possible nonabelian reduced spaces is being made here. In a neighbourhood of $z_\mu$, the reduced Hamiltonian has local coordinates $(x,\pi)\in W_q\times W_q^*$ centered at $z_\mu$ in which it separates as amended potential plus reduced kinetic energy:
\begin{align*}
h_\mu(x,\pi)=K_\mu(x,\pi)+V_\mu(x).
\end{align*}
More precisely, the kinetic term satisfies $K_\mu(x,0)=0$, $D_\pi K_\mu(x,0)=0$, and $\pi\mapsto K_\mu(x,\pi)$ is a positive definite quadratic form for each $x$ near $0$. These identities are exactly what remove linear momentum terms and give the positive momentum Hessian block used below.
Let
\begin{align*}
W_q:=T_qS.
\end{align*}
The normal form gives a chart
\begin{align*}
\Phi:U_\mu\to \Phi(U_\mu)\subset W_q\times W_q^*
\end{align*}
from a neighbourhood $U_\mu\subset P_\mu$ of $z_\mu$ such that $\Phi(z_\mu)=(0,0)$. If $y\in U_\mu$, write $\Phi(y)=(x,\pi)$, where $x\in W_q$ is the reduced shape displacement and $\pi\in W_q^*$ is the reduced shape momentum.
The amended potential is a smooth map
\begin{align*}
V_\mu:S\to\mathbb R,
\end{align*}
viewed in the local shape coordinate $x$ near $0$. The normal form identifies the reduced Hamiltonian as
\begin{align*}
h_\mu(x,\pi)=K_\mu(x,\pi)+V_\mu(x),
\end{align*}
where
\begin{align*}
K_\mu:W_q\times W_q^*\to\mathbb R
\end{align*}
is smooth and, for each $x$ near $0$, the map
\begin{align*}
W_q^*\to\mathbb R, \qquad \pi\mapsto K_\mu(x,\pi)
\end{align*}
is a positive definite quadratic form. This precise form is what excludes extra linear momentum terms at the equilibrium and is the reason the later Hessian computation separates into a shape block and a momentum block.
The reduced equilibrium is represented by $(0,0)$. Since the theorem assumes that the relative equilibrium corresponds locally to a critical point of $V_\mu$ on the slice, and since the kinetic energy has no linear momentum term at $(0,0)$, the first derivative of the reduced Hamiltonian vanishes:
\begin{align*}
Dh_\mu(0,0)=0.
\end{align*}[/guided]