The problem with agile or iterative process(although i am a big fan of it) is that some clients (usually non techs) are just not ready for that! But its amazing how many Project managers still cant understand that most of clients just DONT NEED their product to be shown week earlier but without nice design it meant to have. They are so much inspired with books and articles about “release early and iterate” that they just assume that client will be also happy to be iterative. So they forget about more fundamental rule -keep your client happy all the time!
So keep that in mind before you decide to go agile make sure that client is fine with it, understand it and manage his expectations carefully!

From an analyzing-not-criticizing perspective:

You released to a client but forgot to account for what the average client is looking for. They don’t focus on engineering aspects, and base everything off how it *looks* (remember the Law of Triviality, aka, “What color shall we paint the bikeshed” http://en.wikipedia.org/wiki/Parkinson%27s_Law_of_Triviality ). I’m sure you’d have gotten a similar reaction if you had shown it to a non-engineer (try running your demo past a non-technical family member, and see how they react).

The difference is that if you showed it to a family member, it would have been a lower-risk situation (as opposed to showing it to the client). Or, as the previous commenter suggests, be very sure to explain ahead of time what people should be paying attention to during a demo, and what they should ignore.

Mr Kelly released a beta to the whole world at a high profile event, which means people are going to expect something really good, not half baked. It’s not good to go big when you’re still iterating.

The equivalent of this in startup/software is to build something, use it yourself. Then iterate and release to a friend. Then another. And another. Then, once you’ve got a few friends using it, start inviting bigger batches. All the while, you’ll naturally be picking off the most obvious issues, so that when it does go big, it’s already been proven. And make sure that early users know not to send screencaps to TechCrunch

Interesting problem indeed. And your proposal is also very intriguing. Jeff Patton is coming here to Iceland next week, so I will try to talk to him about this.
Just wanted to add that I find the perception of the value of an early prototype of a product is something that needs to be managed. One has to be explicit with the customers/users about what is the point of the prototype and what is *not* there yet. Also in my experience it has proven to be helpful when they see extremely distasteful cyan colors that “hurt their eyes”, just to remind them that this is something that no one has worked on.

Best regards,

Petar