The Black Country club made a second attempt on Tuesday to lure initial favourite Curbishley to Molineux and it led to the bookmakers reinstating him as a leading candidate.
But the former Charlton and West Ham manager repeated his reasons for pulling out of the race in the first place - a lack of a shared vision for the future with club owner Steve Morgan.
Reading boss McDermott was also on the radar of Morgan and Wolves chief executive Jez Moxey.
McDermott had impressed the duo with the way he turned the Royals into a promotion-chasing force on limited resources.
But the 50-year-old is set to sign an improved new contract at the Madejski Stadium to replace his current 12-month rolling deal.
The £2million compensation fee Brighton would demand for Gus Poyet, who is in the first season of a five-year deal, was also a major stumbling block to any potential interest in the Uruguayan.
But in any case, Wolves are intending to revert to their original plan of seeking a manager with top-flight experience to replace McCarthy. It leaves former Sunderland, Birmingham and Wigan boss Steve Bruce, who relocated on Tuesday in the Birmingham area, as the bookmakers' favourite.
But Bruce has become increasingly frustrated at receiving no contact from Morgan or Moxey since his initial interview on Friday.
He has also received a negative reaction from some sections of Wolves fans over his possible appointment.
Morgan and Moxey are believed to be talking to other potential candidates and the likes of Blackpool's Ian Holloway and Birmingham's Chris Hughton have been linked with Wolves.
But attempting to sign up a manager already in work could be a lengthy process and Wolves do not have time on their side as they strive to move out of the Premier League bottom three.
Caretaker boss Terry Connor now looks likely to be in charge of Saturday's game at Newcastle and will conduct the pre-match press conference at the club's training ground on Thursday.
McCarthy was sacked 10 days ago in a split boardroom vote after five-and-a-half years at Molineux.
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