I don't think it was clear at the time that UTF-8 would take off. UCS-2 and then UTF-16 was well established by 2000 in both Microsoft technologies and elsewhere (like Java). Linux, despite the existence of UTF-8, would still take years to get acceptable internationalization support. Developing good and secure internationalization is a hard problem -- it took a long time for everyone.

It's now 2026, everything always looks different in hindsight.

MS could easily have added proper UTF-8 support in the early 2000s instead of the late 2010s.