I think harmattan was destined to be delayed long before the MeeGo announcement. Even on the 2009 summit they announced that applications in harmattan would be a complete rewrite in Qt. Whoever decided that must have known that would probably not be possible in 12 month.

An enhanced N900 with maemo 5 would have had its own problems, requiring alterations in Maemo 5. There are some places where you need a stylus in maemo 5, making capacitive screens difficult, and some applications are rather slow/lacking features (like the application manager and the ovi maps software.)

I would have bought a N950 with maemo 5 in 2010, but I also bought the older Maemo device (770, N800), when they came out. I doubt a lot of people would have bought such a device.

Nokia just wanted to do too much by itself when it came to software development. A mobile linux distribution/mobile OS, an applications framework, an applications development kit, mobile applications, ovi cloud services, user interface design.
They were out of their league, and just couldn't manage the software development well enough in order to finish in time.

I think they did realize the problems, but attempts to solve the problems were taken too late, making it a lot harder or were taken hastily.
Trolltech was bought just three years ago, and the meego announcement didn't seem very well planned/concrete for example.