1) Though AArch64/ARM64 is not backwards compatible with AArch32, the chips that will be produced will themselves be running ARMv8, which does support running both Aarch32 and AArch64 code (without emulation or anything like that). They will run both codes just fine next to each other. This PDF from ARM is a good overview of ARMv8 http://goo.gl/2u8X2
2) Since people seem to be interested in ARM64 and what path its designers have taken, I highly recommend having a look at http://www.realworldtech.com/arm64/ The conclusion says: "Like x86, ARMv7 had a fair bit of cruft, and the architects took care to remove many of the byzantine aspects of the instruction set that were difficult to implement. The peculiar interrupt modes and banked registers are mostly gone. Predication and implicit shift operations have been dramatically curtailed. The load/store multiple instructions have also been eliminated, replaced with load/store pair. Collectively, these changes make AArch64 potentially more efficient than ARMv7 and easier to implement in modern process technology. "
3) As for Itanium, let's not forget that Itanium is a $4 billion business that's also highly profitable. Sure $4 billion might be peanuts for Intel and it certainly didn't live to the (very) high expectations that the industry had of it in late 90s, but many businesses would be perfectly happy with a $4 billion, profitable "side business".