It is very insane. You would think that after getting such a bad rep with IE that they would make sure they don't get themselves into that kind of situation again, but no. They keep releasing shitty software that holds the rest of the industry back. I never was a Microsoft hater, but in the past few weeks of writing HTML/CSS (if you can call it that) for Outlook support, I have cursed Outlook more than any other piece of software I can remember.
I believe the motivation was that most Outlook users were at corporations who sent/received most of their emails from coworkers who also used Outlook.
What these users really wanted was the ability to edit and format their emails the same way they did in Word. Word really is a fantastic document editor/formatter, and I don't know of any html doc editor that comes close to the flexibility, ease, and power of Word.
So they traded standards for what people really wanted - email that they could format.
If I recall correctly - they did it for security reasons. i.e. Internet Explorer was so full of holes they thought the Word HTML rendered would be easier to keep secure.
In the sense that it did a lot less and thus presented a smaller attack surface, they were right.
You can read more about it here: http://www.email-standards.org/blog/entry/microsoft-to-ignor...