I probably shouldn't say anything, because I know somebody who worked on that team, and from the secondhand information I've occasionally gotten, this in no way surprises me.
To start with, according to everybody I've known who has worked at Microsoft, the company is not so much a political nightmare as a perpetual political war zone. Turf wars there are the stuff of legend. Many good initiatives have suffered and died because influential VPs of completely unrelated products didn't believe in them and undermined them to death.
And into that environment, where they already had one established mobile phone product, they bought and brought in another. Those people have spent years essentially starting over from scratch to make a product that already worked do more or less the same thing using Microsoft technologies instead. I never much cared for the Sidekick at all, but the new device was about as decent a refinement of that concept as I can imagine.
The whole initiative didn't make much sense, except from one perspective, a theory I now consider somewhat confirmed: Microsoft was willing to buy a whole company and burn millions of dollars over years for no other reason than to light a fire under the Windows Mobile team's ass. Windows-based smartphones sucked. They continue to suck, and their prospects for ceasing to suck are still vaporware at best. From the start this was a "two products enter, one product leaves" sort of deal, and Danger just got carried out in a bag.
