Stupidity is my main guess.
Next comes arrogance.
They where right about one thing though... They did **** up a lot for Donkey Kong fans. :/
If Microsoft got the rights however, I would've bought an XBox probably...
Rare created all Kongs outside of DK Jr. and classic DK. Rare did create Cranky Kong and the new look for Donkey Kong used till today though, it was basically all their idea. They evolved the series. But it was stupid to think they would've gained any rights to characters named 'Kong'. Most they could probably do is make sure Nintendo couldn't use characters as Diddy, Dixie, King K.Rool and others again. But I think even that would've failed due to how close Nintendo was with the whole Donkey Kong Country project.
So Micro$hit expecting rights from the series is more than stupid, and even arrogant. 'Harrr, we got the money, we gonna steal away Nintendo's first creation!' **** this attitude. Money ain't ****.