To be fair, there were some cool people in the group who knew the time of day -- one (very senior) fellow asked me point blank to enumerate the problems in Microsoft's online products, and was very intent on making sure that I defended my criticisms. We ended up having a really nice, long conversation about things like the shutdown of the IE team, and other blunders (such as the choice of "live.com" branding).
I think the closest thing I got to an answer, was that the decision came down from on high. There's something like 11 levels of management at Microsoft today; based on what I've seen and heard, the politics of that structure can overwhelm good taste.
I don't know why they dropped the "Windows" part from the name though.
Live seems more of a name for streaming video or something though rather than search.