Purely from what I've read it's capabilities atm are a bit of a failure. Honestly though, with Mango being release in about a month, that could change dramatically.
I used to own an iPhone (3GS) when I was dev'ing for it, and now I own a WP7. I gotta say, it's everything but "a bit of a failure". I love this OS and its interface, but mainly, I love how it doesn't just feel like a container for apps (iPhone). Everything just "flows", so to speak, and I don't feel like I always need to go back to a "main page" to go to my next app. Also, the main page for WP7 is not just apps, it's really ANYTHING you want to pin (eg. websites, playlists, artists, videos, apps, documents, contacts, etc.).
Mango is about to make that "flow" even more prominent :)
I also disagree. I have a WP7 phone and absolutely love the OS. The apps are lacking, and there are a few irritating missing features on my phone (no custom ringtones, can't turn off camera sound, apps can't access compass, etc) but on the whole, I really enjoy the experience.
I'd disagree. The OS's capabilities are actually pretty good imo. I used my wife's HTC Trophy for a few weeks and was a bit bummed to go back to my iPhone. The apps story is night and day though -- there just aren't as many high quality apps and that's where WP7 is hamstrung.
As far as developer experience, I don't do android, but it's so much easier writing and debugging WP7 apps than iOS, from the tools to the simple managed/unmanaged aspects.
That said, Mango isn't going to change things dramatically. It's a good update, but the apps and perception are the problem. Going to be a long haul for WP7, but I hope MSFT sticks to it because it is a good mobile OS.