When we do decide support something, it should have a pretty long lifetime. XQuery 1.0 and XSLT 2.0 are huge undertakings. Writing an implementation is, surprisingly enough, is one of the simpler factors. Making sure it's scalable makes things a little harder. Getting the quality high enough so it's enterprise-ready (btw, this is much, much more than passing XYZ test suite) is pretty difficult. Getting tooling support like query generators, debuggers, and profilers is a substantial amount of work on top of everything else. Investing this much into a couple of unfinished standards? Maybe not the best idea.
SQL Server 2005 provides an XML datatype that also provides Infoset/XQuery data model fidelity which is basically an extended SQL-2003 standard XML type. So based on the information provided in that article, I would not say that either of the two vendors are "well behind the curve". Especially not, since the IBM offering talks about an alpha version, whereas both Oracle's and SQL Server offerings are being used today in production systems. ...We may however get excited at reports that are somewhat clueless and imply that we are behind, while we are ahead.
So was XQuery a black hole? Maybe, but some good came out of it. For example, we came up with a new query architecture to support both XSLT and XQuery. Our Whidbey XSLT implementation is built on this architecture and the performance of this implementation, well, blows the socks off XslTransform. Another major benefit was our ability to provide feedback to the XQuery/XPath working groups in finding issues in the standard. This aspect of early implementation is often trivialized, but it's an important step in validating a standard.