This is pretty unfair. The selection process for KASUMI (unlike the A5/1 and 2 algorithms) was actually done reasonably well. There was an open call for proposals, and then a beauty contest between the various candidates. Unlike A5/1 and A5/2, there was no attempt to implement security by obscurity. Just for information A5/3, _is_ KASUMI, and it is used by default on all UMTS networks (although it's called UEA-1 and UIA-1 in it's various guiese there), as far as I know.
As for "going with AES and other time-tested algorithms", history is littered with cryptographic algorithms that were considered secure, but now are not. (SHA-1 springs to mind). KASUMI was selected in the mid to late nineties, and the standard algorithms weren't used either because of licensing or implementation difficulties (on networks going live this year, KASUMI will be live on battery operated hardware at bitrates of 40Mb/s or so). I seem to recall that the selection process also occured at around the time the US considered 128bit encryption as "weapons grade," so US generated algorithms weren't exportable. At that time, MKSUMI was considered to be pretty good, and the algorithm itself is still considered secure to practical attacks.
Comparing it to modern ciphers is not a fair comparison. If you want to do that, then look at SNOW 3G (the cipher selected for LTE), and then complain.