The Orioles were scared just like the other 28 teams were. If you haven't noticed, the Dodgers have gone mildly insane this year (possibly in a positive way, hats off to Magic).
The Orioles could have gotten Hanley, sure. He would have then promptly become a block with him and Hardy there. Not to mention Machado is already just as good if not already better defensively than Hanley at third, and the bat is going to be on Hanley's level (at least this year's level)in just a matter or time. I would love to win now, but sorry I'm not buying the "hurting Machado's development" argument. He is a professional athlete, and a good one at that. I see no reason why playing 3B for a month or two, or even a year, is going to make him suddenly forget how to play SS.
I've seen Machado play so many times in the past two years that I am fully confident in him at the MLB level. More-so than any other player I have seen in a long time. People look WAY too much into numbers. He's been having good AB against major league caliber pitchers. At 20 years old. He's going to have his lumps, but that was expected and I have already seen adjustments from AB to AB, and even within AB. he's faced 2 playoff caliber teams already and some good pitching at that. I'll go out on a limb here and say there is a possibility he could be better than Hanley is right now for next year.
I hope I didn't come off as a jerk in this, but It's one of the topics that really gets me going. I know the Orioles do some crazy things, but I really think this is one area I'm completely fine with how they have handled it.