I've never heard the Segway described like that. I'd describe it as "incredible hype over something enigmatic that completely evaporated the moment it was revealed".
Dean Kamen is a very sharp inventor, and the origin of the Segway was in a radical wheelchair improvement that he designed. (It was a four-wheel design that would "stand up" on its two back wheels to give the user similar height to a standing person. It could even climb stairs! [1])
A lot of the hype came from luminaries who had seen or tried the Segway and were opining on it themselves. The technology was really neat, and is cool to use. At the time, it was plausible that it might change a lot. In practice, though, it turned out to be mainly a niche product, because we already had pretty good solutions for getting people from place to place.
And that last bit is important. It didn't completely evaporate. I often still see a flock of Segways for guided tours when I'm in Golden Gate Park. Segway still exists, and is still producing a variety of models.
But you're right that the hype got out of control, and the vast difference between expectation and reality harmed Segway's brand. That could definitely happen here.
Companies need to be huge before this before founders get's into the 10+ million dollar range, but even VC do this: http://avc.com/2018/01/taking-money-off-the-table/
Further, it's often encouraged as founders that take out enough money not to have significant financial concerns are more willing to aim for the fences.
User testing has clear limits. The context of a user test is usually something like, "Assume that you have bought one of these, and assume that you're trying to do X. See if you can do X with this." If you're assuming those things, you can't test them.
This is in contrast with what startups do, which is just launching something to see if the market gives a shit. Apple is a good example of that, too. Look at their first product:
https://en.wikipedia.org/wiki/Apple_I
This computer didn't have a keyboard, a monitor, a case, or a power supply. But it was a clear minimum viable product: people bought it and used it, while making it clear they wanted more. A year later, they launched the Apple II:
https://en.wikipedia.org/wiki/Apple_II
These days Apple would never launch something so rough and experimental as the Apple I. Instead, as with MP3 players, smartphones, and smart watches, they were content to let other people pioneer the space and then swoop in once the market was proven.
Magic Leap is trying to be as slick as 2010s Apple, but that cuts them off from acting like 1970s Apple. That could work if they're correct on all their key design and market hypotheses. But it's a giant gamble, and unlike 2010s Apple, a failure could kill them.
This used to be the case and might still be compared to most other products, but that value keeps diminishing more and more.
I would certainly welcome an increased focus on "it just works" again as opposed to "it looks flashy". I enjoy using Apple products a lot for various reasons but it became hard to overlook some issues, especially when it comes to software.
Their practical use is limited to places where cheaper, simpler alternatives can't be used — this basically means places you wouldn't use a bicycle or electric scooter because of the collision risk or space constraints, like shopping malls. Even in large data centres and huge warehouses people would choose bicycles over Segways — a dedicated indoor bicycle is cheap and quite low maintenance.
I'm suspicious of your thesis that Segway price is the main problem. Electric bikes and Vespa scooters cost about the same, and I see far more of those around San Francisco than Segways. The only Segways I see outdoors in SF are people on a group Segway tour, which suggests that they are more valued for novelty than practical benefits.
I think one of the superpowers a startup has is that early on nobody gives a fuck what you're doing, so you're free to iterate quickly and boldly. You find out which of your brilliant ideas are brilliant and which are big mistakes.
Magic Leap's hype/secrecy combo really cuts against that. Apple gets away with that because a) they have more money than God, and b) they mostly enter markets after other people have broken trail for them (e.g., iPod, iPhone, Apple Watch).
It's perfectly plausible that Magic Leap will come out with an interesting but fatally flawed product, like the Amazon Fire Phone or Google Glass. Amazon and Google can shrug and move on, but Magic Leap may not have the cash to recover.
Or, possibly worse, they come out with something like the Segway: really interesting tech that everybody is excited about, but with little practical use once we get past the gee-whiz phase. For a company that has already raised $2.3 billion, that could be fatal.