I was long gone by the C65 time but heard about it. I was under the impression that this was an attempt to keep the engineers busy while they looked for someone to buy the company. The person designing the C65 was a chip designer so it may have been even worse off then my bunch of miscreants were in 84.
Yes- Dave Haynie, who was still there at that time made a comment a while back that pretty much confirms this, saying that the C65 (which he didn't think was a good idea either) was essentially driven by one guy and that "it was strange times at Commodore near the end"
Anyway, thanks for all the interesting feedback!