As I wordily tried to explain in a comment to gregdek's post, I think Ivan is mostly right here: OLPC tried to do "seven new things" (as Mary Lou explained to me when I was hired) -- and "new things" end up costing a lot of debugging and development time, in one of the Iron Laws Of Writing New Code And Making New Hardware. But another problem was just Picking The Wrong Partners. With the exception of the display (one of the few unalloyed successes of the XO hardware), most of our hardware and software partners were working at cross purposes. Red Hat didn't really want to build an embedded OS product, "mesh networking" to Marvel meant household networks between your TV and your stereo with maybe 10 participants, the Geode was an orphaned offering from AMD, the display and flash NAND controller was a unloved one-off, etc. Success is found by aligning your partners' interests with your own.
Yes, combined with Ivan's post, I think some refinement to the "XO: awesome hardware, half-baked software" conventional wisdom is needed, to include "dubious component choices."