"If MSE was a no goer as an airport the government would have rezoned it as a housing area."
This is twaddle. The government doesn't own Manston. They did when it was an MoD base, and they had the option of designating it for alternative uses when the MoD sold it (in 1997). But the great and the good who live in the area around the airport decided that it would make a fabulous engine for economic regeneration of the area. Needless to say, they didn't bother checking whether this was commercially viable. When you are spending the taxpayers' dollar you don't need to bother with such piffling concerns. The government went along with it and you are now looking at the results of that decision.
Infratil can do what they like with the airport. After years of failure, nobody could argue that they have to keep it for aviation. They can simply close it down and apply for planning permission to do what they want. If the planning permission is refused they just do what all the other developers do; make a few changes and put it in again. In the end local Councils can't hold out against a determined developer because they can't afford the court costs involved.