I think the main reason was that the deal with Microsoft was made in order to save in software development costs. MeeGo was actually very well received amongst critics and was acclaimed to be the best Nokia smartphone OS to date and serious challenger to iOS and Android.
Unfortunately the Nokia lead didn't believe in MeeGo and signed the deal with Microsoft. Elop even kindly slandered MeeGo, which was probably the most bizarre brain fart of a CEO. A cool way to say "thanks" to hundreds of engineers that worked years on that product.
MeeGo was killed right after its birth and the rest is history: Nowadays Nokia is a dying company in a life-support married to Microsoft.
I wish Jolla to succeed and make clear that the whole Microsoft fiasco was a huge miscalculation on behalf of Elop and other Nokia management.
Most Android phone vendors pay Microsoft Tax of 5-15$/phone for patents. So less expensive than Android is definitely possible, atleast till MS sues them.
Personally I feel, they should just go ahead and license the OS to all the chinese vendors than trying to build a phone themselves.
This is a brave move by the Meego folks. Good to see the confidence in the team and they might prove Nokia's decision of abandoning Meego wrong, though I feel it is greatly challenging job to compete against Andriod, Apple. If Julia succeeds, it will be interesting to see how Nokia responds. Are they getting the phone hardware from Nokia?