A bad, deadly launch
This VR works by directly interfacing with the body's Central Nervous System. The prototypes looked fine and worked fine, but when it came time for mass production, something went wrong.
As a result, the big worldwide launch day was met with catastrophe. Numerous people had terrible reactions to the technology, leading to paralysis, brain damage, and/or death. The launching company also downplayed such responses until such a time that public opinion was already against it, at which time they still tried to save face but issued a recall and found/fixed the issue.
As a result, many people feared the devices even though they were statistically safer than something like paintball or karate classes. The company that built them stopped producing them since it was no longer profitable, and no other company has attempted to replicate them due to public dislike. The units exist and are used just fine, but occasionally some issue crops up - Usually due to someone misusing the devices - that drives home the issues in people's mind.
For some real-world analogies, think of the opinion vs Nuclear power. It's immensely safer than any other alternative, by pretty much any metric, but things like Cherynobyl and nuclear weapons have caused people to equate Nuclear with Bad. Additionally, take a look at Haloween candy and poison/razor blades/etc. That almost never happened, but the small amount of times that it did happen it was given huge amounts of press coverage so now everyone's paranoid about it.