I see that the vast majority of templates are for diesel loco traction. My interest in MSTS is steam locos. Can diesel locos in existing templates be changed to steam locos, bearing in mind that in most cases steam locos have a tender which is a different MSTS file and must stay coupled to the loco. I have looked in the manual but do not find this question answered.

Yes, they can. You would need to modify the consists, that were supplied with the template, from diesels to steam locomotives. All templates should come with AI traffic consists and a 'player' consist. The player consist should include the steam loco you plan to use.
When Activity Generator creates an activity, it will place a copy of the player consist into the activity just as it was created originally as a player consist. The only difference will be the name. It will begin SLG .

Jim

Thanks Jim. Will this take account of the fact the then tender must always stay connected to the loco?

Yes, it would keep the tender connected to the loco. You assign the loco and tender to the player consist. Activity Generator will always use the player consist, that you set up, within the activity that you create from the template.
It won't make any changes by itself to the consist that you have set up as player consist.