The issue here IMHO is that in the situation in question there basically is no such thing as a "fully flexible" hotel reservation (e.g. one which you can cancel until X time on the day of arrival), even at a modest premium to the prevailing/rack rate. This isn't that much of an issue except that it creates a situation, to make an imperfect analogy, where if the airplane breaks down your reservation can get cancelled but if your car breaks down on the way to the airport you can't cancel AND the airline can resell your seat [1]. This is the subject of more than a little fuming on my part, but basically there's something perverse about this sort of setup (which basically amounts to "Acts of God only help one side in this contract").

Yes, I know there's such a thing as travel insurance, but my objection there is that (1) you're dealing with a third party who might take their sweet time to reimburse you, (2) you're dealing with a rather tangled-up product (I've seen airline-specific policies but not hotel-specific ones, which means if you're on a sufficiently flexible fare a "full coverage" policy to cover everything might be inordinately expensive just to cover the hotel), and (3) setting aside policies to cover a full trip, there's something that seems utterly wrong about being forced to "break out" coverage like this.

[1] Gross over-simplification, I know, but the gist is the point here.