It came from Microsoft, so by extension a large chunk of the FOSS community instantly dismissed it as rubbish. Naturally therefore any site built on FOSS technology isn't going to be using it.
I get called in by lots of household-name companies to do code review of programs including large websites, and I can categorically tell you that the vast majority of websites are either PHP (probably 60-70%) or ASP.NET C# (almost all of the rest). Despite big press, things like Ruby-on-rails, perl and other languages just never seemed to catch on in my experience.
Google and Yahoo are really big exceptions because they use their own bespoke software (Google uses Java that cross-compiles to C and Yahoo use various custom programs that are written in C++ and Java) - and they're exceptions because the scale of the companies behind them and compounded by Google's horrendous "not-invented-here syndrome" and Yahoo pre-dating almost any website language you care to mention.
I suppose the two big reasons for C#'s failure to completely dominate the web in the way that it really has cornered the small desktop app market is:
a) C# runs best on Microsoft Server 2008, which is expensive compared to a LAMP stack
There are plenty of ASP .NET sites right? So, I don't think C# is less accepted.
Of course, there is no C# Script yet (whatever that awesome C# compiler feature demoned years ago), and ASP .NET has a higher learning threshold than other basic HTML based approaches. Only recently the ASP .NET Razor (Web Pages and WebMatrix) are what I considered simple enough. And I do not know any free ASP .NET providers yet, which also make it a higher ceiling for many potential developers (it really is, paying for it was very very big sacrifice for me, even though it is only 5 bucks per month).
In short, if we have C# Script and a free ASP .NET sandbox from MS, I think it will attract a lot of developers by a long run.