You are right. The kernel can most definitely run on a WP7 era hardware, but it was most likely a cost decision and the benefits vs. cost debate is a huge one in a software development company. Also, moving forward, carrying on the CE kernel from 1995 wasn't a good option for the maturity of the OS. The NT kernel can offer more extensibility and it's most likely the only kernel that's being continuously developed and improved upon at Microsoft. And, merging the kernel from the Windows tree is always beneficial for the OS. The main reason iOS is so good is because it runs on the same kernel as OSX, which in turn is based on a Unix kernel.
Software is a highly tractable medium. It can be made to do anything you want it to. In that sense, I don't really understand what people mean when they say the NT kernel is more extensible than CE. I find that too unspecific for me to agree or disagree with.
CE has always run on more CPU architectures than Windows. It still does. CE7 supports up to 256 cores while W8 supports "only" 64. Just considering those two things, and assuming extensible relates to hardware, CE7 sounds more "extensible" to me than W8.
The thing is, barely a single consumer has a working understanding of software. Without a background in software engineering it just isn't palpable. As a result, many will desperately try to relate any OS related decision to hardware. That isn't how it works.
The main concerns that lead Microsoft to dump CE were software related. One of Microsoft's top priorities was to make it as easy as possible to port apps between WP8 and W8RT. That only works if the .NET runtime environments on both of those operating systems work identically. Unfortunately, CE's .NET runtime environment is a very stripped down version of its larger sibling. Making both of them 100% compatible (and keeping them compatible) is an extremely difficult and costly affair. That isn't feasible. The better option was to bring the entire Windows .NET runtime over to WP. However, the Windows .NET runtime makes direct calls into MinWin, so MinWin had to be brought over as well. The Windows kernel is part of MinWin, so that is how it too ended up on WP. Hardware extensibility doesn't factor into any of this.
it was most likely a cost decision and the benefits vs. cost debate is a huge one in a software development company.
Absolutely, but that too wasn't the main reason. Think of a gaming console, and how updates are handled in that space and why. If you understand why the update policies in that space are the way they are, and the benefits they offer (to OS and 3rd party developers), then you will also understand what Microsoft was thinking with WP.