MS found itself in a hard place. To offer the service it wanted, it needed to make commitments to the music industry about DRM. I do not think at the time MS understood this to mean that it would have a perpetual expense to maintain the service no matter what. Generally, if you decide the headaches aren't worth it, you shut down.
But MS also made a clear commitment to its customers about the availability of the music and the ability to move it from one authorized device to another. No doubt MS had some fine print in its terms of service that give it the right to unilaterally terminate its service. But customers are still burned and they are not getting what they thought they understood MS to be selling.
As usual, the music industry that insists upon DRM protections at all costs and damn the customer have scant sympathy or even appreciation for the problem. As far as they are concerned, MS needs to meet its demands if it wants to license the songs, and customers need to live by their rules if they want to play the songs. Don't like it, don't buy it. Caveat emptor and all that.
Which is why the music industry strategy is so self-defeating. Does anyone imagine that this incident makes the public sympathetic to the music industry's DRM demands? In a stroke, the music industry has taught another few million users that DRM means "Do Rip Me Off," because these customers are not getting what they paid for AND, in no small part because of the music industry's insane demands, are losing another legal source of music. This is a base of people who have demonstrated that they prefer to buy legally licensed music and abide by DRM than illegally download music for free. And their reward? They get ripped off and treated like garbage. When they complain, they are advised to circumvent the DRM by burning the music to CDS and then ripping the CDS. This hardly teaches respect for the law.
I do not expect the music industry to make the connection. An industry that routinely treats their customers with contempt in so many contexts and already believes everyone with a laptop and a broadband connection is a "pirate" is unlikely to understand how it is shooting itself in the foot. But it just pissed off a whole bunch of people who until now were willing to play by the RIAA's rules.