There are a number of technical quibbles one can make, of which I think two are significant enough to make the "if you arrive late, you better be stunning" argument hold some water. Those are:
- Autofocus speed that's far enough behind to be noticeable
- Lack of an eye-level EVF or even the option for an add-on one, and statements from Canon indicating that there never will be an M camera with this feature.
But, beyond those, there's something really important right now: crippling lack of lenses. Micro Four Thirds has two big brands with a history of quality lensmaking with that system as their primary focus, plus third-party support. Canon has only two available in the US — a very typical slow wide-angle zoom "kit lens" and a 22mm "pancake" lens providing a traditional wide-but-not-very-wide field of view. The killer, though, is that there's no roadmap for more! If those were the first two lenses and a full field were coming, that might be one thing, but as is, the large-sensor Canon PowerShot G1 X (not to be confused with the similarly-named Panasonic model) seems like it might be more versatile, with its integrated 15-60mm f/2.8-5.8 zoom (and, not to mention optical tunnel viewfinder). (There is also a wide-angle 11-22mm and a longer 55-200mm, but they're not available in the US except through gray-market import channels, and there doesn't seem to be any official interest in expanding that — it seems like Canon is not just not trying, but actively not engaging.)
Contrast this with, say, the Fujifilm X-Pro launch; a smaller company also a bit late to the party, but launched with 3 great prime lenses and very quickly announced two more, followed by a roadmap with even more direction (including future zoom lenses). Despite the company's size and standing in the sales rankings, one can be pretty confident that they're committed to this line.
With Canon's resources, if they wanted to show that they had really arrived, they could have made a big splash, with a small but complete system at launch with a clear commitment for the future. As it is, it's completely reasonable to speculate that they're just dipping their toes and might go off in a different direction in the near future; if you buy into the M system, you might be left with no option for normal or portrait range prime lenses and no telephoto options at all. This is fear, uncertainty, and doubt, but, if Canon wanted to chase it all away, they certainly could.
(More on mirrorless lens lineups in general at How do lens lineups vary across Mirrorless camera systems?)