Windows is a plenty good enough platform to deliver e-Books on. And Windows runs enough trendy OSS programming languages on (eg. python), that the kiddos could've gotten a kick out of it plus a crash course in programming. Also, there's a lot of educational software out there that only runs on Windows that these governments could potentially leverage on day 1.
Microsoft would've had plenty of incentive to keep it up to date, plus keep the price low. Besides, OPLC had potential customers who insisted that the device run Windows. What's Negroponte going to say - "no, your *country's* children can't have inexpensive educational tools because I insist that they run Linux!"? If the goal is to get educational materials into children's hands, sometimes compromises must be made.
I say this as someone who has a substantial amount of code on the XO - the XO failed largely on its own merits. The project was (in-large) done in a fishbowl and came in at 2x its promised price. Plus, we've seen time and again that top-down approaches toward helping poverty-stricken areas (unfortunately) seldom work.