I’m not sure what a heavily skinned feature phone OS would have been at the time, maybe Symbian. It was easier to take the mediatek chip and throw WinCE on whatever, even if you didn’t add many smart phone features.
It definitely made for a lot of jokes, but I don’t think the executives, at least on the MS china side where I was working, took it as a good omen at all. These were junk phones, and the iPhone at the time clearly wasn’t junk. That WinMo was shortly thereafter abandoned makes me think Redmond thought so as well.
Microsoft also locked down WP, so it wasn’t pirate-able, and since Android was already out a couple of years later when Wp was done and was basically free (no need to pirate!), well, everyone lost interest in whatever Microsoft was doing with mobile.