From what I understand the challenge had little to do with talent and was about desire to compete. The reality is that Michigan was 5-7 last year and with the way it recruits that should never happen. Multiple people close to the program commented that a lot of players seemed to had gotten used to losing and were simply going through the motions...and this was being said last year when it was happening and not just some after the fact excuse to make Michigan fans feel better about the future. Harbaugh's first priority, when he came in, was to start fixing that.
In one way or another he gave a challenge to all classes to step up (their approach/commitment). From what I can gather it is still a work in progress and the staff is still finding out who are the players "who want it." I do feel bad that the kid feels slighted but he had choice to meet the challenge. He chose not to and I hope his decision works out for him as I hope it does for the kids who are still on the fence in this regard (this will probably not be the last story you read like this).