Quite a few years back I got a book from a friend, summarizing new and noteworthy changes in Windows 95 (you could make a good drinking game from it if you took a sip each time you encountered the expression "32-bit", it was all the rage). The registry was indeed intended to serve as a central storage for configuration, replacing .ini files scattered all over the system.
It could be easily replaced by a c:\Windows\etc folder full of .ini files and it'd be a vast improvement.
I think Windows frowned upon lots of small files for performance and locking reasons - if some app decides to hold the file hostage, you'll end up needing to restart the system to be able to save a new version.
C:\Windows\win.ini was a previous problem point, it had driver related settings, OS preferences and some non-MS applications added their own keys to the lot as well.
Of course the win.ini (and system.ini) became a mess. They should be in a folder, with each application having their own file with their own settings. And reading the file and then CLOSING IT so others could to stuff to it.