It's an interesting story, that's for sure. I tend to think that Harry and Meghan ran up against the dual inclinations of "suck it up and deal" and "this too shall pass" within the royal family. From what I know about royal history, the Queen is particularly touchy on the first because her whole line got stuck with Buckingham Palace after her uncle decided to abdicate rather than fight it out over (or rule without) Wallis Simpson. (Although Wallis may have done Britain a favor given that Edward was WAAAAY too sympathetic to fascism and Nazi Germany.) There is also, unfortunately, a long tradition of royal brides getting trashed by the media, especially during the courtship/early marriage days. Even the Queen Mother was viewed with some skepticism as a member of the aristocracy rather than an actual princess, although it was less of a deal because her husband was not at that time expected to be king. Certainly Diana, Sarah Ferguson, Camilla, and Kate all went through rough times with the press, most of which have now blown over. So the Queen and Charles may have been thinking that in a few more years, especially as attention is diverted by Charles' eventual coronation, and William and his growing family's greater roles, and Meghan no longer being the new and interesting royal, things would calm down of their own right if they could just stall long enough. But I think they were underestimating that Meghan, as an older and more confident person, is less willing to let the Palace dictate her life, that the intersection of race/being an American/being a television actress was going to inflame the press and public in especially awful ways, and that Harry, after losing his mother specifically due to the press, is not going to put up with it either.
For the record, I think the whole kerfuffle about whose picture was on the Queen's desk during the Christmas speech was probably more about ANDREW than Harry...having just members of the royal family who are the direct line of succession (plus Philip) was a way to avoid reminding the public that Andrew, who is really in disgrace, exists.
It will be interesting to see what the Palace does next--they could certainly withdraw the Sussex title and take away their current residence and the income from the Duchy of Cornwall, all of which are subject to the generosity of the Queen and the Prince of Wales...but the more they take away, the less influence the royal family has down the road, and they are nothing if not playing the long game. I do hope that William and Harry eventually put things right between them. Being in the royal family seems like such a peculiar and high-pressure experience, having people around who get it is a rare thing.