I'm an embedded consultant at a small firm of young guys. We use subversion, git and mercurial internally. We have project management tools, bug tracking and issue management, scheduling and time tracking and version control. We use VMware and VirtualBox to keep versioned installs of operating systems and toolchains. We're up to speed on the latest languages and frameworks, and we use whatever is right for the task at hand.
Our customers do not, in general, have any of those things. Many of them have no central version control (independent teams sometimes have subversion setup for themselves). Those who have it are usually using CVS, and usually don't use it very well.
Embedded is a field of "old fogeys" still. It isn't taught in school, it isn't advertised very well, and the companies who do it don't offer the cool perks that web companies do. A lot of these companies are running into problems where a large portion of their engineering force is retiring, and nobody is available to replace them.
This is more likely to be the case with our big customers than the smaller ones. The small ones usually have at least have some people pushing for modern project management, though it's often not implemented across the whole company.
Many of them got into the field when microcontrollers were extremely limited and C compilers were unreliable -- most of them learned assembly and used it for most of their career. There is still a tendency for the older ones to not believe us when we say their project can be written in C. Ten years ago, they would have been right.
Obviously, you can't generalize an entire industry as being "way behind", but many embedded firms just haven't progressed the same way those in other industries have.
Also, it's critical to realize that it has nothing to do with the engineers not being smart. They tend to be quite brilliant, in fact. But many of them are electrical engineers with a background in analog electronics, physics, and math, instead of modern software development.