I can't get a meaningful output from a circuit in Thomas & Moorby's exercise 2.7
Just from inspecting the logic diagram, I don't see how the original FSM can ever get out of its initial state {Y,Q1,Q0}=3'b000, regardless of its inputs. Are you sure 3'b000 is the correct initial/reset state?

When Q1 is 0, the Ain input is effectively disabled, because anything AND 0 is 0.

Similarly, when Q0==0 the Bin input is disabled, and when {Q1,Q0}==2'b00 the Cin input is disabled. So when the initial state sets Y, Q1, and Q0 all 0, the circuit becomes insensitive to all three of its inputs.

One other thing: the test bench would be more useful to you, if it tested various combinations of the inputs.