Basically the BIGGEST mistake Microsoft made is releasing a device that you either LOVE or HATE (with no room in between) in the midst of a highly competitive smartphone market led by giants like Apple and Android. Its as if Microsoft is less concerned about competing, and more like they just wanted to release their version of a smartphone.
You say (hypethically speaking) microsoft could give gift cards for the same app that you have on iphone or android. But you dont get the same apps. You get different versions of, or poor-man's versions (example: facebook, twitter, tetris, words with friends, pandora, various messenger apps, etc.. Why is this?
Xbox as a major selling point: its great if you own an Xbox.. but the integration, games, and everything else associated doesnt mean a thing to people who dont own an Xbox.
Music player: Zune is awesome. But it lives in Microsoft land too. Does the majority of people have Zune? You need it to download music and certain apps, and for phone updates.
Microsoft Office is more widely used than the above mentioned, as its basically the standard for writing documents. So this being pre-installed is pretty cool, as no other Os has this. But its not enough to convert people because whos gonna want to edit and write documents on their phone? I use it primarily to save text message drafts in one-note.
Now to the biggest thing.. Customization. From basic phone settings to how things are displayed and used, this where you either love it or hate it, with no room in between.
The metro UI is Wp7. It is innovative, clean, and highly useful. But it loses its charm as its the ONLY home screen to put EVERYTHING on. Younger people coming from iphone or android are gonna want more customization. Older people that have all started out on basic flip phones are gonna want more customization. Unless you solely love everything about Microsoft, there is nothing aside from the metro ui that would draw these people from what they already have.
It is evident in an app I just downloaded called 1800 pocket pc. In the 'concepts' section of this app you will see the things that wp7 needs to be a complete smartphone.
Ideas for a separate google hub, where you have all your google apps and the option to set the search icon to automaticaly use google instead of bing. There's a 'File Explorer' concept. Ideas for tiles that have 4 sides to hold more information (cubes). And a notification center concept. These 'concepts' are generally what other OS's already have.
If Wp7 has these things in addition to the metro UI, you would definatly have a device people would be more willing convert to, instead of something you either love or hate.
I actually have to disagree with a lot of the things you said here:
Microsoft didn't purposely make an OS that you are going to love or hate, people react that way to the os because its so different and they did this to make it competitive. For example, android users will hate me for saying this, but essentially I feel that android is a crappier version of ios. I feel that it did a couple of cool innovative things like linking with google product online, like calendar and such, notifications, etc. save for widgets, you cant say that android is very different from ios. If M$ made an os that was more or less similar to android and ios, than it would be just another os, there would be almost nothing to differentiate it from the other OSes, which imo, my favorite part of wp7 is that it is so different from the other OSes. that is also why i like WebOS back in the day because it too was also very different and innovative for its time, palm just couldn't make good hardware.
you are right in one aspect, one of the major weaknesses of wp7 is its an immature os, it just doesn't have the app catalog that android or iOS does, but I think the overall quality of the apps are far superior to android and some even beat their iOS counterparts. The main reason I say this is because one thing m$ did was that they forced apps to kind of use the hub layout, where you have a list of things or a grid that scrolls and you swipe to the right or left to get to different options, like in the apps hub, or people hub, or xbox, etc. But the great thing about this is that the apps conform to the OS and make the integration seem more unified, for example the wikipedia app has the search as the first section, swipe to the right and you get your recently searched items, and swipe to right again and you get options, similar to how all of the other parts of the phone is layed out. For the most part, android and iOS do not do this, so most apps have a big variation in their ui design, which makes some apps have a steeper learning curve because they are layed out very differently.
you also talk about how xbox only helps if you have an xbox and zune is also a microsoft product, but google and apple are no different. Of course they use their current products for leverage for selling their new products, especially look no further for apple for this. If you use itunes, which I don't, then its natural you are probably going to want an iphone which works with itunes and ipad which does so as well. also it works better with and imac or macbook pro and of course apple's icloud, another product they sell. Google does the same thing with gmail, calendar, docs, etc. So you can say that xbox integration doesn't help somebody that doesn't have an xbox, but apple's ipod program and icloud also have no use to me because I don't use other apple products either.
You are right that wp7 does have less customization but lets look at android, do you actually think that the customization android gives you actually helps make it easier to use? for example, isn't 7 homescreens on a phone way over kill? M$ only made the main start screen so you pin the things you use most to it and then you go to the app list and scroll through it for programs that are used less. It makes sense, its much easier and faster to get to what you want than having to shift through 7 homescreens and an app menu to find the program or widget you are looking for.
Also the only reason there isn't a google hub is because its a M$ product and google probably won't make an app for their search for a product that competes with theirs, like for the same reason that M$ won't make office for iOS or android, thats their leverage to get you to buy their platform. I don't like the fact with wp7 that your default search can't be google, but bing is decent and they want you to use bing to search because its another way to get you to use a m$ product because you are buying a m$ phone.
personally i would like to see a file browser, that would be nice, but i don't know what you are talking about with notifications, wp7 definitely pops up notifications on the screen or in tiles, thats the point of them. Also i think the 4 sides of a cube to hold more information isn't good either, your adding another level of complexity that just makes the phone harder to learn to use, which imo, is the greatest part of the os is its simplicity.