What are the differences between the two that caused both to not be in communion with each other?
This is a very shallow way of looking at it, but at least Confessional Lutheranism is more exclusive, whereas Anglicanism is a little broader in doctrine. A silly, but perhaps helpful way of thinking of it is that it could possible to be Lutheran in the Anglican system, but not Anglican in the Lutheran system. But that's not always the case, as confessions and traditions vary.
In the United States, The Episcopal Church is in communion with the Evangelical Lutheran Church in America so while the United States' Anglican representative isn't in communion with all Lutherans, it is with some Lutherans.
The Anglican churches and the Lutheran churches disagree on a number of things such as the Eucharist, Apostolic Succession, and what constitutes an essential doctrine. However, the more important explanation for why the two did not form a single reformed church owes more to the different histories of the two. The Church in England had existed since antiquity whereas Luther was forced by circumstances to start a new one; and the Church of England was, of course, the official church of the land, whereas there was not yet a united German nation at that time in history.
Adding on to what you said, the English were ambivalent about the Lutheran reformation from the start. Henry VII even persecuted Lutherans even after he left Rome, and there are English Lutheran martyrs (like Robert Barnes). Luther himself was quite upset with Henry VIII when Robert Barnes was killed for teaching Lutheran doctrine.
Your complaint is with the Catholic king, Henry VIII, then. That is a part of the history of the nation and the church but is only of passing relevance to the issue presented by the Original Post here, I would think.
... Many others were deeply offended by the implications of having our bishop submit to ordination by Episcopal bishops.
ACNA and NALC have a communion agreement. In my experience the Anglicans are mostly apathetic about it but the NALC folk are more positive.The LCMS and the ACNA are in discussions IIRC. Not in communion, however.
Lest the quote above of "submit" be misunderstood, let me say that when our new Episcopal Bishop was being installed, among the Episcopal Bishops laying on of hands were also Bishops from ELCA. I see it as a two-way street that celebrates our common connection.
In fairness, Spong is something of a renegade - the exception not the rule. Those that Judge TEC by Spong miss the bigger picture.
The bigger picture seems to be increasingly an institution that is comfortable being a "respectable" and "decent" place for bourgeois morality, to be blunt. .
Good gravy! Considering that everyone from the religious writers to the man on the street know that TEC is one of the most trendy and unconventional church bodies in the USA, the above statement is amazing.
That's called damning with faint praise, I believe. But as Christian churches go, TEC certainly is what I an the religious world in general knows it to be. That of course refers to the church itself, not to every member, many of whom suffer quietly while their leaders go off one deep end after another.For the social cliques that Episcopalians tend to circulate in, they really aren't that unconventional.