Telerik is owned by Microsoft? I had no idea (and, not to be rude, but I still don't... do you have a reference for that?).As to why, the TinyMCE editor is easier for us to customize and is lighter weight on the page. Telerik makes good stuff and we are still using their editor in our admin pages, and their script combining/compression on all of our pages, but we think the TinyMCE editor will provide a better experience for the users.
Microsoft doesn't own Telerik.
The problem with the “WYSIWYG Sapphire” icons is that they look pretty good at large sizes, but at 16x16 they look kind of blurry. I don't mind the Office 2003 icons; they are very functional and not ugly at all. There are more modern icon sets available that do look good at 16x16, but I don't think Sapphire is one of those.
At work, we use a combination of FamFamFam Silk Icons, PI Diagona Pack and Tango Desktop Project.
P.S.: now that I look at the “PI Diagona Pack”-page, I see they have a new icon set called “Fugue Icons”, which also looks pretty good (and has a lot of different icons; all kinds of arrows, a lot of variation, …)
I found Tiny's plugin model a terrible pain to work with, though. Especially when the only documentation you have is their unhelpful wiki, which basically has "look at the sample plugin" as an explanation. Buy some plugins from them, like the file and image browser, and you're off even worse. Their support to my question regarding IIS aliases and file paths was "use firebug to debug it!"