Thing is, DungeonScape isn't a character generator. That's just one of its functions. Herolab can't replace it.
I would imagine that the issues with Herolab are that (a) it doesn't incorporate the other functionality WotC wanted for its electronic tools suite (campaign management, integrated newsfeeds, etc.) and that (b) it advertises other systems to the customer, which is great for the customer but maybe not so ideal for WotC. Maybe if Lone Wolf were to create a standalone D&D specific version of the software it might appear more attractive to them, though it still wouldn't have the campaign management stuff WotC wants. WotC also wants to be able to sell adventures and the like via its electronic tools, and I got the impression from my conversation with Trapdoor at GenCon that much smaller chunks - sharing and selling individual monsters and the like - are also in the plan, plus being able to send things to other players or to and from the DM, privately if necessary.
So Herolab is a great character generator and manager, and has some great player-side in-game functionality, but it isn't a replacement for any more than one part of the DungeonScape plan. It supports players well, but it's not the tool for DMs, or the tool for WotC's commercial plans.
Now, if WotC just wanted a character generator with some awesome in-game player features, Herolab can't be beat.
(Bizarrely I've also seen people on FB and places saying "Just give it to Roll20!" - which bemuses me, since Roll20 is an entirely different type of software!)
Some features which were part of DS; Herolab does the first two, and a couple of others in a slightly more clunky way (you can share data packs, but not in the quick way WotC wants you to).
- Character generation
- In-game calculations and die rolls
- DM tools
- Sharing items or info between players and the DM
- Campaign management
- DM private access to character sheets in real time
- Maps and pictures
- Purchase and download of adventures
- Sharing custom content with other players and DMs online, both individual items and complete adventures