No, it's because they were too late to market and because their product wasn't that much better to change the computing paradigm again, like the way the iPhone did in 2007. So WP7 may be a little different than iOS and Android, but it's still mostly the same, and Android and iOS already have huge leads and ecosystems.
Also, because Android is open source, it will reach markets that WP7 never will because it's proprietary and it has restrictions that are even higher than the desktop Windows, which back then "won" because it was the default option for the market leader IBM, and it had no real "mass-market" competition before it.
Android is the default option already for pretty much any manufacturer now, from noname Asian manufacturers to more recognized companies.
Played with the WP7 for an hour when we got it in the office. You are spot on about it being not that much better. It was nice and all, but at the end of the hour I was very much "meh" and had no reason to actually use it let alone tell someone that they would want it v.s. my iphone or blackberry.
Also, because Android is open source, it will reach markets that WP7 never will because it's proprietary and it has restrictions that are even higher than the desktop Windows, which back then "won" because it was the default option for the market leader IBM, and it had no real "mass-market" competition before it.
Android is the default option already for pretty much any manufacturer now, from noname Asian manufacturers to more recognized companies.