I agree that Microsoft's mobile OS has come a long way. However, they were way late to the game even with their first modern refresh (Windows Phone 7), and they've been a step behind the rest of the industry even during Windows Phone 8.x. And while Windows 10 Mobile has come a long way since it's disastrous public launch, that's a very low bar to get over. The W10M OS is still very rough compared to iOS and Android.
Releasing another lackluster phone at the end of last year would not have made a material difference in the Windows Mobile world. At this point, there are so few of us still using the platform and very little reason for anybody else to switch to it.
Nadella is correct; Microsoft can't take a "me too" approach to mobile. They need differentiating features to set themselves apart. The problem is that Microsoft failed to capitalize on the promising differentiating features it had. Given the success of the stylus experience on Surface, it failed to translate that stylus to phones in order to compete with other top-end phablets like Note. Lumia once had the best camera experience by far, but MS failed to capitalize on this one too, and now everybody else has caught up. And at the time of it's launch, the Lumia 1520 was a top-tier phablet when the phablet market was just taking off. Nokia/MS then proceeded to release a string of junky low-spec phones instead of continuing the momentum of FINALLY having a flagship-grade Windows Phone for the first time ever.
I know that everybody's expecting the Surface Phone (if it ever happens) to turn this around and be a new differentiator or "category defining" device. However, PC sales are in the toilet. If Apple is famous for selling us crap that we didn't know we needed, Microsoft is going to miniaturize a device that we already know we don't want. I'd buy a Surface Phone, as would most of us here, but we are an extremist fringe movement in tech. We alone aren't going to turn around Microsoft's mobile ambitions. We're basically 20% of the 0.75% of the global smartphone market. 0.15%ers, if you will.