My impression was that the only thing wrong with XML was the syntax (hence the JSON revolution). After all, apart from syntax, possibly some of the ill-advised "external element" stuff ... I think XML is strictly better in every meaningful sense than JSON.
They did. Especially web design crowd. Its syntax and tech are crap, though, compared to what came before it. Another lesson never learned by mainstream IT. That amount of developer and user effort would've achieved more results by using superior technology.
I'm guessing because they already knew HTML, so it seemed familiar and easy to learn to them. Similar to how many programmers prefer crazy (but familiar) C-like syntax (C, C++, C#, Java, PHP, Javascript, ...) and dismiss anything that looks remotely unfamiliar even if much saner (Lisp, Pascal, ML, ...).
http://www.defmacro.org/ramblings/lisp.html