I know many developers who have worked on terrible games and first off, they all know it's bad for one reason or another. I don't think I've met anyone that's so arrogant that they can't admit their game had no mistakes (I even know people that have worked on things like Uncharted and they too readily admit their mistakes). I also know someone who worked on the Iron Man game and while they know it was a stinker, they got valuable work and experience from it. Depending on the game, some are proud of their work, others just want to move on to their next project.
I have a loooooong laundry list of mistakes or things I things I didn't have time to fix in Ghostbusters (some people know about, some, like a game breaking bug, people haven't found or at least don't know how to reproduce :-p) but I'm still pretty proud of my work. I may cringe every time I see that laundrymat sign not be there, truck explosion fires at the wrong time, or people don't get my weight puzzle, but I'm still pretty damn proud of it with its mistakes. That was a few years of my life, blood, sweat, and tears, and I love it. Mistakes and all. You can say what you want about Ghostbusters: the Video Game, I know the mistakes are there and I know why they're there, but it's still me in those levels and I love it.
The reasons they give for the bad game range anywhere from publishing issues, poor management, no time/money, and/or it just wasn't a good game.
I don't think most developers take it too personally when people tell them their game is bad as long as they aren't bashing it for the sake of bashing it (and then those people are generally ignored). Most take it as experience and just move on. A bad game will always be a bad game, but at least you have one more shipped game under your belt.