I believe the issues were administrative and legal rather than technical. My impression was that once the Stanford administrative bureaucracy got wind of what was happening with these courses, what started as a fun and entrepreneurial "let's change education" turned into much paper work and long meetings. I've found this is the typical academic response to anything truly innovative ;) (I also think this is partly why Thrun walked away from his tenure, to simply be able to work on changing the world without having to worry about all of the rest of it)

Plus it's outsourced to a third-party startup in some way.

You mean Coursera?

My understanding is it wasn't technical issues, but rather legal/political wrangling with Stanford that affected both Coursera and Udacity's courses.