Because they tried to make it a feature, it lost ground in terms of functionality and performance and users preferred a different option with a better experience.
That brings me to another point - you can make a feature into a product by creating a fundamentally better experience. It isn’t easy though and you can find the tide shift against you long run.
Of course IE eventually rotted, but it's silly to claim that low quality was actually the case or that low quality was the result of it being bundled with the OS.
It's not as if we had auto-installed monthly or weekly browser updates back then - if you were using Netscape 4 the odds were you didn't update it very often at all. If anything the odds were better that grandma's PC would get a Windows security update/service pack with IE fixes/improvements installed than a critical Netscape update.
IMO the point at which IE truly started falling behind was around when Firefox came onto the scene, and once Chrome was a thing its fate was sealed. Before that point I don't think you could realistically argue that it "wasn't that good" because there was no superior alternative out there and it got the job done.
Shipping a web view as an OS component is also a good idea in general, as demonstrated by the fact that all the major commercial OS vendors are doing it. Many apps rely on webviews and in the past major software was using IE to render HTML content (Steam, for one example)
Steve Jobs even called it a “feature,” saying iCloud would put it out of business.
In this case, the Apple ecosystem limited Apple’s thinking and both Box and Dropbox were able to move to create unique value. And frankly, good for them.
I would buy it in an instant.. but for 10 dollars a month so that I use 2% of that space? Sorry, then I will look somewhere else..