I also recall red-beard's explanations on this subject. And I am in agreement with your below recollection that the state of the flash technology was a couple of generations behind the then current 18(?) micron technology...
red_beard you are officially called to give us a update on what is current technology...
The flash technology (maybe this has changed) meant the E2 die had to be two generations behind the most current. This also means that the E2 was too large to fit on available MB real estate and the cost was too high for the taste of the TCPA, now TCG and Microsoft. Atmel failed in their initial commitment to build the E2, setting Wave one to two years behind. It took a long time but Samsug finally delivered and we are in two smart card readers and a keyboard.