I disagree with all the answers above

They put most of the blame on the methods instead of putting it on poor judgement from both players, which was, I believe, what happened. Sure, in this case different methods might have avoided disaster, but good judgement would also have avoided it.
1
♥ 2
♥ pass 2
♠
3
♦ pass pass pass
2
♥: this was a fine bid. If you play weak/strong michaels it might have been better to stick to discipline and bid 1
♠ or 2
♣, but it certainly is playable to bid michaels with any strength.
2
♠: seems fine to me as well. 2NT runs the obvious risk of ending up playing in the 5-2 fit one level higher.
North's pass: it's hard to believe South won't have at least 2 clubs or 3 spades. You can't dbl because that would show a good hand with diamonds and a cue probably shows a much stronger hand. But hey, you can try 4
♣... sometimes you have to take chances. It's a bidder's game.
South's pass: knowing where 6 or 7 cards in diamonds are, as opposed to 4 cards in clubs, there are very good odds that pard has clubs. 4
♣ is in order then. This sort of reasoning is a very good way to deal with the ambiguity of michaels cues. (I've never failed on me..) There is nothing wrong with ambiguous michaels as long as you know a trick or two. Just like the multi. If the
♦K were somewhere else, you could even cue 3
♥.
So I think North and South both made slight judgement errors which ended up in pessimistic passes. System is fine
Auction:
1H-2H-P-?