And it's still unambiguous. You can cringe at what some people do, but it would be strictly a taste issue rather than a technical one, as the parse would still be unambiguous. And if you think you can fix taste issues with technical specification, well, you've already lost anyhow.
If it did somehow happen that a good deal of interesting content was published using the standard, the most popular client would probably be nonconforming, ignoring the rule to not render ambiguous content.
Protocols used to be limited by technology, now they're defined by ideology.
Today, when writers are using visual editors (or Markdown), few are writing their own HTML any more. A web standard requiring compliance would work differently today.
I'd say it was a minority of writers that were handcrafting XHTML. And it was the case that everyone or their handcrafting or using tools could validate their compliance using a browser which made it very easy to adjust your tools or your handcrafted code. We are now in a situation where there is no schema for HTML.
I, for one, am very much in favor of forking the web with a document format with a schema. It really seems like a small and simple change to me.
Honestly I don't think it was killed by one thing, or by anything. Just no platform really cared and it wasn't a win for anyone and occasionally a loss.