They weren't really idiots, though, that's quite harsh. People wanted to be able to share software but there were so many barriers to entry at the distribution/installation/update phases that they used the solution that didn't require any of that.
It was a hack but it worked better to serve the needs of the users.
Come on, there are so many native cross-platform solutions which are easy to go and much less bloated than web engine, e.g. Qt/GTK+/wxWidgets/Xamarin/etc.
Yes, this is how classic software works. It can download updates in the background, just like e.g. web browsers do. It will be more performant than web apps.
That's quite a lot of extra code to write. Any app you want to share this way now needs to think about networking, self updating, version management etc.
Now take that beautiful application you have made and your customers want, and beg the trolls who sit between you and them for permission to distribute it.
Assuming you get said permission some weeks later, now hand over double-digit percentages of your top-line revenue to these despicable rent-seekers, do the same with your tax payments and notice how you're left with less than 30% of the value you have created.
It was a hack but it worked better to serve the needs of the users.