Ok, so what went wrong with the project?
Pedrosa was seen as the savior of the project, and with Binder and Miguel getting wins you'd these last last two seasons where it's mainly been on Europe, with multiple races in the RB Ring, they'd be entirely optimized for this part of the season but they're no where. I agree that KTM is incredibly fickle; I actually respected Zarco more when he left when he realized it was a career ender and left for a satellite ride at Pramac. Even the way the handled the situation with Petrux was pathetic they kind of just tossed him to the side, and gave him some consolation prize at the Dakar.
They have the money, resources, they have home court advantage, they have a factory in Austria. Where they only abe to perform when they still had concessions?
Petrucci and Lecuona were both treated incredibly badly last year, basically told at the last minute that it was over. It's interesting to read all the sympathetic journalist's take on the recent Remi Gardner scrum, where he revealed that they told him they weren't renewing because he wasn't 'professional' enough. Aside from trying to puzzle that out, his biggest (and truly legit) complaint was they led him on to think he would have a ride next year, but then pulled the rug out only last race weekend in Austria when it is now almost impossible to get a good ride next year in any major class, whether it's MotoGP, Moto2 or WSBK. In some ways, they've basically destroyed his career, as a year away these days is basically it for a rider without serious financial backing elsewhere.
As for what's wrong with the bike, my take is they basically used the Honda as a template early days, and then doubled down on that by bringing Pedrosa and Mike Leitner on board to lead the process. As the Honda has started to really struggle, the KTM has similarly struggled. Neither bike works well with the current Michelins, and dumping Leitner (also unceremoniously) for Francesco Guidotti in an attempt to capture some Ducati mojo has not only not helped, it seems to have gotten worse.
As BMW's very expensive and mostly disastrous foray into WSBK shows, just spending more than everyone else isn't a guarantee of success. My theory for Honda's current failings is that they've historically focused on building the craziest, most powerful engine they can, and then tried to build a chassis that (mostly) can handle it. Historically, that's been a winning formula. But MotoGP has reached a tipping point where the power exceeds the basic physics of the bikes (i.e. wheelies or wheelspin), and the challenge is less about adding power and more about finding ways to actually use it. Hence why things like aero and ride height have become so critical. Honda has fallen behind in those areas, and KTM is in a similar predicament. Binder and Oliveira have had some flashes of early success (2nd for Binder in Qatar and Oliveira's wet win in Indonesia), but they've mostly been anonymous since, with familiar QP struggles leading to heroic 6th place finishes after starting 15th or whatever.
One theory I heard is that they're trying to emulate the Red Bull F1 approach of developing a whole bunch of drivers/riders in hopes that one turns out to be a Marquez-like gifted wizard (or Verstappen in F1, though I don't follow that sport enough to know how legit that is). The problem with that approach is that it's so close in the top class that it's very hard to see if someone has potential.