Slight aside, there are a lot of reasons that Itanium failed, but certainly one of them was lack of backwards compatibility.
Itanium did not aim at the x86 market. The x86 translation layer was retrospectively seen as a mistake as well, because it wasn't relevant, but required transistors that limited the design's performance overall, which was relevant.
Maybe not. But x86 certainly took over the market Itanium was aiming for.
Server people care for 64-bit address spaces, and that's a feature introduced by AMD64 which is not available in x86.
Backwards compatibility straight back to 1964 is a big deal, there's lots of 50+ year old code still in production at banks, insurers, and the like.
But you certainly can natively run user-mode 16-bit DOS programs on a modern CPU.