Microsoft was one of the first companies who fully internalized the importance of seamless backwards compatibility. The lessons had been around for a while, such as the fate of the 1200XL. They would have done a lot better, even at a higher price, if they had focused on it. The Atari 8-bit line had a lot going for it and was arguably superior (flame wars incoming, Atari army please help me) in many ways than the C64.
The Atari line was much better at scrolling, had a much much better master palette, supported display lists (nicer than setting up interrupts in the C64) and the POKEY had some advantages over the SID, not just the extra channel but also in doing beefy sound effects. I don't think any of this is denied by C64 fans. The C64 on the other hand could push nearly 6x the sprite data per line, had Color RAM for more interes…
You're right about the bonkers 3D! https://www.youtube.com/watch?v=qwcN9FraNjQ https://www.youtube.com/watch?v=KatdrdEVEwY&t=532s
I think the main thing was that Atari (pre83 company) abandoned the 8 bit line too early, and didn't make the 5200 cross-compatible.