It is interesting reading this thread, and I think some people have written well thought out responses. I don't think the problem is DCS and Legacy are outdated totally, the fact that they were created in the 90's doesn't mean the entire thing is outdated. There are a lot of factors here, ones that are endemic to new technology, and I think it is interesting to talk about why things are done the way they are done.
Think about TV sets. The digital television system we use, the digital cable and broadcast formats for HDTV, were created about 25 years ago, and haven't changed (the standards I mean). And will all the bells and whistles that have been added since then, LCD flatscreens, smart tv's, higher refresh rates, the 4k tv's (that basically take the standard 1024 and 'upscales' it to 4k, like DVD's that get upscaled). You can argue that getting tv over a cable box or over the air is ancient technology, that you can stream and so forth, but the reality is it works well for people, and it like in many cases is not that easy to upgrade technology.
Lionel's command control systems are a classic example, when they upgraded to Legacy they could have shifted the paradigm, and tried for example to use direct radio control instead of the kluge they came up with. However, had they done that, it would have left their installed base not able to use the legacy controller, or they would have to keep the in rail and direct radio control, which would be a pain in the you know what to implement.
Likewise, with Legacy, they could have totally rewritten their command language and operations interface, but again, it would hurt their installed base, because it wouldn't have backwards compatibility if they did that. So basically, legacy was an extension of TMCC (so a legacy engine can run on TMCC, albeit not with all features, and legacy can control TMCC), it was added features and so forth, but the basic architecture did not change. If I remember correctly, TMCC has something like 250,000 unique control codes, and they were running out of space, so legacy allows some ridiculous number. This allowed the things you see on vision, the better control capability, better smoke synchronization, better sounds, etc.....
When you have an installed base it becomes more difficult. Video games, on the other hand, don't bother with backward compatibility (they did at one point), but with video game consoles you upgrade games as new versions come out, and if a game doesn't offer new versions it likely won't be played by many people over time, so upgrading to the new system is a given, eventually PS3 and the Xbox owners will upgrade to PS4 and Xbox360 to take advantage of the latest generation of games that will not be available.
Intel faces the same problems with their CPU chips, because of backwards compatibility, people running various versions of windows, and for a while DOS, and old applications, Intel had to keep support for the original intel 808x chip base. For example, it meant they had to keep the crazy segmented memory structure found in the 808x series (that allowed the 640k on the original pc's), which in turn kept them from switching to 32 bit architecture which for example put windows machines at disadvantage to the Mac and linux machines running true 32 bit cpu's from Motorola. It was only when the old generations finally died out, that Intel was able to redesign their chips away from the 808x architecture.
There also is the point that advanced technology in of itself is not necessarily going to give you what you want. Legacy can handle a lot more than it currently does using its current architecture, it can handle an almost endless collection of engines and devices and such, it can handle all kinds of undreamt of functions. Besides updating firmware, Lionel also can update the components in the unit while being the same architecture, they can always add more memory and faster processors for example in updated versions.
I think what this complaint really is is why are we still stuck with two competing systems, rather than having one system like DCC that is standard, and why are we stuck with the quirkiness of the Lionel and MTH delivery systems that use the rails to get the signal out, whether through the middle rail or via radiation from the outside rails. The answer to that isn't technological, it is because Lionel and MTH see their control system as a way to induce customers to use their products and not use the other guys, pure and simple, and a proprietary system makes them money. I personally think they would do better with a universal system, but that is just my opinion, for a number of reasons.
DCC could potentially be answer, the problem is that DCC is quite honestly even more old tech than TMCC or DCS, it doesn't have all the features in large part because it was designed with scale model railroading in mind where there isn't the kind of bells and whistles kind of things associated with 'toy trains', the operating accessories and the cutsey things that have been a large part of this market. A lot of DCC is about operational speed control, with sound coming in second, but for example, a swinging bell wouldn't be a high priority or controlling an operating accessory. Obviously DCC could be encoded to do a lot more, but to the manufacturers who through the NMRA maintain DCC, there hasn't been much will to add to it (like Lionel and MTH, DCC can be added to, allowing a new DCC controller to work on existing DCC receivers, but also handling features in an expanded, newer one).
Since DCC is open, someone in theory could create a 'super DCC' that would be aimed at the 3 rail market, comes up with a receiver board that can use the stuff already in Lionel and MTH products (the flywheel speed control apparatus, the smoke units, and so forth) or in accessories,and control them (wouldn't violate any patents of Lionel and MTH, since they wouldn't be using the DCS or legacy command sets or receivers). Problem is, of course, that it would be very expensive and probably not worth the cost. Someone else with a deep pockets legal team might be able to reverse engineer the MTH and Lionel command sets, and develop a one shop control for both, and have the deep pockets to make a lawsuit from MTH and Lionel not worth fighting...but not likely to happen.
Want my radical idea? If we really as a community want Lionel and MTH to come up with 1 system (and I have no irons in this, since I currently don't have a layout, and my equipment is pretty much all conventional for now), we would vote with our feet, refuse to buy legacy and PS control systems, and buy only the conventional engines where they exist, it would probably send a message, but like with higher prices, don't catch your breath. Speaking hypothetically, when I finally have the space and the money to invest in the hobby (paying for a very expensive college), I would love to have a single control system that used direct radio control technology rather than the through the rail Rube Goldberg special we have, and also have an easy upgrade path for command and conventional engines that would allow it to be used with the new system (at the very least, on conventional engines, relatively simple speed control and sound that would work similarly to what it has in conventional, but allow controlling individual engines; wouldn't need a flywheel and fancy speed control, a basic system to vary voltage to the motor and send the right pulse to the whistle/sound in the unit would do)...but I doubt it is going to happen, I think we will have to live with DCS and Legacy for a long time to come, whether controlled via a hand controller or through WiFi or Bluetooth doesn't matter, I think the actual meat and potatoes will be the same. Lionchief does show an interesting parallel, but since it is designed to operate one engine at a time remotely, doesn't sound like that has hopes to be a multi engine control system with direct radio control, though it could be.