I didn't pay attention to previous Fanfests. What happened wrong in the other ones?
Previously, mostly just stuff that goes wrong with any kind of "line & time based" giveaway.
They told people to line up in the wrong area, then changed the area, so some people were now in the front of the line while others were at the end and missed out, switching from first come first serve to a raffle system, no real security for the raffle system (people got multiple tickets, had other people get them more tickets, etc), line cutting, people lying, etc etc. Nothing specifically on the Xbox team, but it just seemed like they were not prepared for what happened.
Each year it's gotten bigger and bigger. 3 years ago it was 100 people from a line, plus 50 "Xbox VIPs" from online who got to go. They expanded it the next year, and we waited over night, but they had so many slots that peopled walked up the next day and got a ticket. Last year, 1000+ people showed up for 500 promised tickets.
I'd recommended going with an online system this year, or something run directly through the Microsoft store. Problems will always creep up, with anything, I just don't understand how this wasn't stress tested ahead of time.
Easier said than done. Most large venues in LA have been booked for months in advance for E3 week. If they could find a place large enough to host the event, it would be either be really expensive or far away from the convention center/Downtown.
They BUSED everyone to the Petersen Auto museum last year, so adding any significant amount of people could have a number of unintended consequences for their whole project.