All of this has been covered/talked about ad nauseam, as far as I'm concerned what this comes down to is 2 basic facts:
1. There's a core development team (with it's fair share of internal politics and power struggles) who is supposedly looking out for potential issues affecting Bitcoin's operational health. Once they agree on the change and implement it, there's no "voting" by any other players in the Bitcoin ecosystem. They just do what they think is best.
2. There's a disproportionate amount of hashing power concentrated in large mining pools. This would be bad enough but what makes it even worse is the heaviest hitters are in China and are unified against the biggest proposed change SOME of the core team members like Mike were/are advocating.
So now how this standstill will resolve - remains to be seen. There are multiple factors at play but as of right now the situation isn't pretty. To claim that "this is how bitcoin is supposed to work" is to agree with Mike in saying that it is messed up beyond recognition :)