The thing is that a lot of things here are genuinely useful for most users, e.g.:
- Blocking malicious sites.
- Page prediction.
- Improving typing prediction.
- Finding open hotspots and automatic sharing of network credentials with contacts.
- Cortana.
- Search suggestions.
Multiple of these are also already done by Google and Apple, but the riots are much smaller. So, it's probably a mixture of: bad wording, spreading privacy options across too many configuration screens, and all that fuelled by some good old Microsoft hatred (I can't remember people being quite as upset about Android or iOS).
I think everyone would be better off if one of the first configuration steps would give three choices:
1. Protect my privacy completely. No data is sent at all to Microsoft.
2. Only send anonymized data to Microsoft. Data is used in a non-identifiable manner, enables some features such as blocking malicious websites and search suggestions.
3. Send useful data about me to Microsoft. Sends non-anonymous data to Microsoft to tailor Cortana and Windows to your needs. Data is not used for advertising purposes or given to third parties.
Simple to understand and everyone can make pick their own trade-off.