The x86 emulator built into Itanium 1 was very bad, yes, but it didn't matter that much outside of workstation use. HP build Itanium 2 without it, and provided software emulators for x86 and HP-PA that worked apparently "well enough".
The real deal breaker was Itanium being ridiculously expensive and quickly destroying any possibility of increased market by pricing itself out of it - and even in the markets that had the money, it was considered overpriced (nicest thing I heard about Itanium was "overpriced DSP masquerading as general purpose CPU"). I remember reading intel's published roadmaps before news about amd64 landed - We would be running 32bit x86 much longer under it, with Itanium being kept at extra premium prices.
Even customers that had Itanium as the only upgrade path available - thanks to HP - found the performance so bad - on natively compiled code! - they effectively forced HP to produce Alpha till Itanium was pretty much confirmed dead and the customers migrated out of HP vendor-locked stack (at one of the largest mobile telcos in Poland we migrated from Alpha to IBM POWER, many OpenVMS customers kept buying/hoarding Wildfire and Marvel architecture servers).
