Xanadu is a story of building castles in the air for thirty years; a project so disconnected from reality and the collaborators so obsessed with perfection that they didn't ship the first version until when the Internet had already reached a critical mass.
That said, it seems to me that the response is fairly nit-picky. You'd think that the Xanadu guys could put together an unoptimized demo of what their vision was using modern tech to brute-force things that would have had to be finessed. I understand they did release a demo a number of years ago, but I could never get it to work.
[1] Errors in "The Curse of Xanadu," by Gary Wolf: http://web.archive.org/web/20001003011753/http://xanadu.com....
It's clear that there are indeed some serious issues with the Wired story. For example if you read point 3 of the Wired letter, "Transclusion Misstated", it's evident that Ted Nelson understood content-addressable networking long before eg. Bittorrent came about. Gary Wolf, though, apparently didn't quite get content-addressable networking even after researching Xanadu, meeting with Nelson himself, and writing a feature article about Xanadu for Wired; but he pronounced confidently about it in the article anyway.
You mean the name "Xanadu" is perfectly fitting :)