I'm just trying to offer suggestions of what WotC might be thinking, given that they're acting at least somewhat rationally from their point of view. And the brand dilution/support to competition aspect is the main thing that I can see.
Yes, and I think you are right. They cited piracy as the reason but that just doesn't make sense to me. I remember some poll that was linked to from here that asked people if getting a "free" PDF stopped them from purchasing a hard copy if they liked the product; the response was overwhelming in the negative. I'll take myself as an example. I downloaded the legitimately free Eclipse Phase RPG and scanned through it, realized it was a product that I wanted to buy but didn't need in that moment. A few months later I ordered a hard copy.
My personal opinion is that the best route for offering PDFs is similar to what Paizo does: offer them for much less than the hard copy and if you buy the hard copy from them, you get the PDF free. But the point being, the vast majority of people greatly prefer a hard copy and a PDF is a good way to get a feel for something before you buy it, not unlike scanning through a book in a bookstore.
I would say that keeping their PDFs off the market is, at best, a zero-sum game for WotC. But because the cons relate to goodwill, community, and PR, I would say it veers slightly towards a net loss. But you know how you sometimes like someone better after a fight than if you hadn't had the fight at all? This could also be an opportunity for WotC to come out shining: "We realize our mistakes, we want to be a company for the people, and this is what we're going to do about it..."
Now what they could do about it is another matter, but other than the PDFs I would suggest greater communication with the fans, especially the diehard base that, quite frankly, puts food on their table. This would entail some kind of feedback mechanism where they get info as to what people want, what they like, etc. This would go a long way to making 5E a truly great game that pleases as many people as possible.
It is still a hope that they come back with at least Dragon as a print magazine, but that is sort of swimming upstream at this point given the trends of newspapers and magazines. But Dragon, as far as I know, was always a loss leader so to say that it didn't make any money is to miss the point.
You're misremembering. I can't remember the precise sequence of events, but the whole "early adopter for money" scheme was abandoned as the relevant deadline for availability of the GSL and the draft SRD was missed by WotC.
What I think is more telling about the GSL saga is not that it shows how stingy WotC has become (as I've already posted, and posted back at the time that the GSL thing was happening, it's unrealistic to expect an entertainment company to give away its IP merely out of generosity - and WotC obviously feels commercially burned by the OGL, and so is not inclined to go the OGL+SRD route again). Rather it is an early sign of WotC's inability to come up with a clear strategy in relation to 4e. First they dithered over the GSL, couldn't agree on the best version, and ended up losing the cooperation of at least some 3PP who might have been 4e supporters (Necromancer in particular comes to mind). Then there seems to have been dithering and a lack of clear direction over the DDI, which by all accounts is still continuing (I'm not a subscriber myself). Then there is the dithering and lack of clear direction over the print publications.
Yes, good point - especially the part I put in boldface. This continues to be the problem as the ship is floundering. I would say that a large source of the problem is that at some point they became rather insular and seemed to lose touch with the fan-base, especially us diehards. As Bryon put it, they focused too much on the many "birds in the bush" and neglected the fewer "birds in hand," who are also the folks that spend many times the amount a casual player does.
WotC seem to me to have a good game - 4e - but a great deal of uncertainty about how to get it to sell in sufficient commercial volume.
I agree. I don't think it is a perfect game, but no RPG ever has been or ever will be. But I would argue that much of its major problems and causes of dislikes for at least some people are
tonal, the way it has been marketed and the non-traditional elements that have been introduced or emphasized. I would say that there are deeper structural issues that would take a revamp of the game to fix, namely those elements that take many folks out of the story and onto the battlemap. But those in and of themselves don't contribute as much to the hostility currently directed at WotC and 4E.
I would like to hear how keeping old PDFs legally unavailable is helping them grow the D&D brand. Do they want to turn fans of their vintage products into pirates and then sue them out of the hobby?
You first

. Seriously - how does offering the old PDFs help WotC sell and grow 4E/DDI?
I think pemerton has addressed your question - especially that it could (at least in WotC's view) negatively impact 4E through dilution and offering material that supports version(s) of the game they are no longer producing, including their main competitors. Now they could take a more radical approach like some have suggested and support both 3.5 and 4E...it is an interesting idea and I don't know how it would turn out, but it seems like it could easily deteriorate into a confused mess.
I personally would like to see them "perfect" DDI as they gradually wind 4E down, offer everything via PDF, create a stronger community through better communication and feedback mechanisms, bring Dragon back into print as an accepted loss leader, and work towards 5E in 2-3 years time. So you'd have something like this:
2011: Fix/develop DDI; experiment with 4E products; work on "healing the rift" in the community (e.g. PDFs). GenCon announcement: The return of Dragon! 5E "alpha" phase begins in earnest - gathering information, feedback, etc.
2012: DDI running at full steam; 4E winding down. GenCon announcement: 5E coming soon!
2013: Open playtest of 5E concepts and rules via DDI and Dragon; 5E's "beta phase." Perhaps even a limited edition "beta box."
2014: 5E comes out to raving accolades.
The point being, with a bit of direction and well-placed strategic moves, WotC could make the coming out party of 5E a truly memorable occasion. The main points in my above timeline being:
*Fix DDI.
*Bring Dragon back.
*Create better lines of communication and feedback loops with the fan base; and perhaps most importantly:
*Let us help them create 5E via playtesting and feedback.
The last point is risky and very difficult in that you can't please everyone, but by getting everyone involved and asking for feedback from those that have been playing for 10,20, 30+ years, not only does it nurture goodwill and community, but it gathers great ideas.