Yes, it's wasteful, and yes, it's demoralizing as hell when you're the ordinary employee whose product just got canceled. But then, you should understand (at least at some level) that your work is meaningless when you go join a big company: the reason they're big is because their product is already "good enough" for millions of people.
Certainly, the market is fickle, but that is different than something political that is going on where you have no influence. It is completely conceivable that you optimized such that your product generated revenue far in excess of its costs, but that it is canceled for a (good) strategic reason.
Sure the difference is probably only psycholgical, but finding out that work you cared about was only a waste of time somehow feels more just if there was no market for it than if it had traction and the was shuttered for a reason you don't know.
In a startup (esp if it's your own), the psychological and emotional stakes are significantly higher. Also, there's no reason that politics can't find their way into a startup you're running. You just might not notice it because you've positioned yourself at the top of the tree of monkeys.
I actually think making multiple prototypes is a good thing, it helps you understand things from more angles and see more possibilities about how a problem can be solved. But going and releasing both is confusing to customers and ultimately fragments your product line-up (canibalizing your sales) which is something Apple is desperate to avoid.
I think both Jobs' biographies detailed Forstall & Fadell's development, but I thought they knew about each other, working on Mac to Phone & iPod to Phone concepts respectively.
I consider it wise strategy when the project is high risk and its outcome very important.