You're right. WYSIWYG works great for photoshop for example. There's definitely nothing wrong with the concept itself, but when it is applied to certain things it just doesn't work.
There is definitely a lot wrong with it when applied to the web. I blame the makers WYSIWYG software. How many people who don't know html or css are actually going to come out from using a wysiwyg editor with a design/website they like? Most people would probably be happier using a CMS if they want a weblog, and they would get to pick from any number of design templates out there.