I suspect many people dislike WMP simply because it is Microsoft. Same sort of people tend to rave over Linux etc, without always understanding the technicalities. WMP is capable, does what it says on the tin, and does it well. It's album handling is suspect when you use network stored media, but other than that, it works.
Winamp - the only other player I used to install - used to be so much better than WMP, but that app lost its way when it got swallowed by AOL, never really recovered.
MS do sell Windows (though not Vista as far as I can see) without WMP. On these PC's, I tend to install WMP if a player is required, as it probably is the best all round player available.
Nope -- Microsoft do some good stuff, that I freely admit, but WMP is definitely not one of them. It's bloated, buggy crap that really isn't particularly good at playing and managing music, although it's "got da bling" which I guess makes it good in a lot of people's eyes. Oh and AFAIK it doesn't play FLAC either, although I've never tried as I long since gave up on it.
I've yet to come across a media player that is good for both videos and music, mainly because unified media players aren't much good at managing music collections that span tens of thousands of tracks. Hence why on all systems I generally have a seperate app for both, although Winamp is pretty decent for playing videos but not my preferred app.
Personally on Windows systems I use Media Player Classic for videos, which is a free open-source player which has the interface of old WMP (version 6.4 or something, last version before it became bloated and focused on visuals rather than playing media) but a modern back-end that excels at playing videos quickly and easily. It's extensible and can even play Quicktime and Real Player videos so that's another two pieces of junk you don't need installed.
Like I said before for music on Windows I use Winamp, there are plugins available for just about any format you may wish to play, the Media Library is fully configurable so you can set up categories based on lots of criteria if you want, and it's still only a few meg to download. Admittedly it hasn't really seen much development since America Online (ugh!) took it over, but it's still far ahead of WMP and will probably continue to be as long as Microsoft keep adding more bloat and more bugs, while still failing to add basic functionality that decent players have had for years.
WMP is a perfect example of Microsoft leveraging their desktop monopoly to gain traction in other markets (which is exactly why the EU ruled against them in the anti-trust case). Do you really think anyone would use WMP if it were made by an independent vendor and you had to go online to download it (just like you do with Winamp)? I seriously doubt it -- there are far better products out there, but many people are happy to use whatever comes preinstalled regardless of how crap it is. Same goes for Hotmail Messenger.... ICQ had a far bigger market share (and latterly America Online) and a better protocol, but as soon as Windows Messenger came preinstalled with Windows suddenly it became the dominant client and the others all but disappeared.
IMO Microsoft's strategy in markets like this is seldom about trying to deliver the best product, it's about delivering a product that is "good enough" so that the average person isn't displeased enough to make the effort of finding, downloading and installing a superior alternative.
PS You can get WMP-free versions of Vista, known as the "N" editions. I currently have the full version but as I can get a free licence for the "N" version too I'm going to pick one of those up and install it instead, as I'd rather not have the garbage that is WMP installed at all.