"Well they did go to Windows Mobile first"
Because they rest on laurels for far too long with PalmOS - which, remember, did run on a 68000, not ARM. When the landscape changed, they were caught with their pants down, and had to find a solution quickly. Back then, also, Windows Mobile/CE was a better enterprise solution, with more applications, and before the iPhone made the smartphone sexy just because it was from Apple, they were mostly business devices, they were not stylish enough to be status-symbols.
Sure, having two different product lines with two different incompatible OS was a very bad move, and it was a symptom of bad management. They had not a good roadmap for PalmOS evolution, and switching to a wholly new incompatible OS is always very risky - especially when good alternatives exist. They also wasted resources in the Foleo.
Anyway, when they started I believe there was no way to go with something like WebOS, the hardware required didn't exist yet.