It's revisionist history to imply that hasbro doesn't know how. PoC and beyond showed us they are fully capable of producing impressive 4" figures of the highest order.
That being said, for some reason, they don't think there is a market for high-quality 1:18th military...... either WM doesn't want to support it - thus no widespread traction, the price-points would be too high, lack of media tie-ins, etc. There are a myriad of possible reasons hasbro doesn't produce 1:18th military en-mass anymore, and I don't presume to know exactly what market forces have driven that decision. However, I am certain that they very much know how and for some inexplicable reason choose not to do so.
Mega is clearly schooling them on how to do small-scale brick military though. MB CoD is what Kre-O Joe should have been, and I believe that had they started from scratch with Joe first, it might have been. But by the time they started doing brick-scale Joe, Kreo TFs and their cute little very popular kreons were hitting their stride. So they made cute little kreon Joes, and I'm sure it made sense to them at the time. But in hindsight, that obviously was a poor choice for Joe.
But not even MB has been able to crack the lego code. While I like MB sets more, from a market perspective, lego still has the market share. And MB has much lower margins. MB MSRP prices are typically less per brick, and virtually every set is routinely 40-60% off at TRU and Amazon, with 75% off clearance 6-months after release being a virtual guarantee. This does not happen with lego (at least not with any regularity or on a line-wide basis).
So I don't think MB has all the answers either, but clearly they know something about making really fun military bricks. But the longer they are owned by Mattel, the greater the odds of that getting screwed up as well.