Once again, the blame rests almost entirely with Microsofts marketing team.
The only message they seem clear in communicating are things the consumer can't have. There were no doubts about the way DRM and online check in and used games would work, but any supposed benefits of this plan were vague at best.
Not only that, but why do the benefits have to go away with the change in DRM policy? Even still Microsoft is spending time telling consumers what they won't be getting. "Sorry kids, but no more family sharing!" What's stopping them from keeping the family share for games you purchase digitally? What's stopping them from requiring you to be online for that feature to work, but allowing you to be offline for single player disc based games?
They say that their plan was so integral to the way their system would work, but they drop it like a bad habit mere days after E3. Either there was no grand plan, or their plan was shit. Neither scenario gives me confidence in their product.
I have an M11x R3 that I use as my only gaming PC. I have something similar to @zombiesatemycereal that I put the laptop and wired mouse on while I sit on the couch. Plug the laptop into the television and I'm good to go.
Of course this is rumor and speculation, but for me the thing that gives it credence is that it follows common sense.
If the family share plan worked as we all dreamed, it would have been a huge bullet point feature that MS would be shouting from the mountains, especially after Sony had their conference. That was not the case. Also, if publishers don't like used games, how do you think they like the idea that 1 copy sold could be freely distributed amongst 10 people with minimal restrictions? I just don't see it.
And I don't think this discussion is irrelevant just because it is hypothetical. The fact that MS left this open enough for there to be a discussion in the first place speaks volumes.
I think the family share plan would have been short demos only, and MS just never elaborated on that. There is just no way that publishers would allow cannibalization of potential sales that would cause.
I think they had to reverse the DRM policies because going forward and revealing the full details of the share plan would have absolutely sunk the console.