The W3C did go ahead with XHTML2. And everyone else, most notably the browser makers, realized that with such a broken W3C as would create such a monster, they’d have to make a new spec themselves if they wanted it to be reasonable... whence WHATWG and HTML5.

Years later, XHTML2 abandoned by the world, the W3C decided it no longer wanted to be sidelined, and it begged for the HTML5 spec to be brought back under its purview. So that’s where we are now.