Ah. One of my favourite rant topics.
I'm going to stay away from a litany of the mechanical flaws in M&M in favour of why I think 3E stumbled out of the gate with its fan base.
To start, by the time DCA came along, the general perception among the fans was that GR had abandoned the game line. Promised new supplements were not coming out, the staff were absent from the forums, stuff wasn't getting posted on their web site, and long-standing rules FAQs weren't getting answered. We now know that GR was feverishly working on DC Adventures and simply didn't have time for any of that (or perceived that they did not) but the PR damage had already been done.
Second, 3E was split across two products: DC Adventures and M&M 3E. mechanically they're identical and textually almost so, although 3E has the errata from DCA included in it. This wasn't a PR problem, but it did mean that a lot of people held off buying the DCA book, which was only available in hardcover and had a lot of DC fluff and character builds many didn't want. So the fan excitement was spread across far too many months of a split product release cycle.
Last, the inevitable edition war. Amusingly, the big complaint here was that 3E wasn't enough of a change from 2E. 3E has a couple of really nice new ideas, and the rest is essentially house rules taken almost directly from the 2E Mastermind's Manual. The superpower system was made even more abstract and streamlined, and much of the detail that Ultimate Power added was removed. This led to an explosion in the "how do I build this superpower" questions, and the answers - even from the freelancers who worked on the DC character books - are contradictory and often counter-intuitive. Combat has been made simpler and faster, but at the cost of detail, and the game is now explicitly four-colour. Without house rules you can't seriously injure or kill someone.
Because so much of GR's effort was and is going into the DC books, there's still very little support coming out beyond those books, except for the usual Monster Manuals^G^Gsupervillain roster books.
All combined, the general problem with M&M is that a large chunk of their fan base looked at the new edition and said "yeah, there's nothing here that makes me want to invalidate my existing investment in 2E, and I can backport the two or three things that are worth having."