If SaffronOlive's article is anything to go by it seems like MTGO was initially created to prove that MTG could be played online. It seems like the problems that it has had have been because Wizards really isn't a software company and have no idea how to manage software. Not sure what the reasons were but it seems like their online client was probably one of the lowest items on their list of concerns which leads us to the state of MTGO now. I think that they could have easily have let the company that developed the original program maintain it or contracted out if they wanted to come up with a brand new client. I don't know if it's a direct result of their new management but it seems like someone light a fire underneath the MTGO team in order to improve whatever they can about the program.

Fwiw, I think the most impressive part of MTGO how the MTG ruleset (for the most part, minus all the dumb bugs that show up every now and then) have been implemented online.