I wouldn't count them out just yet. It's true that they can't kill a web 2.0 businesses like youtube the way they could kill desktop-based competitors in the past, but don't forget that the browser itself is a desktop-based app.

If I controlled MS, I would try to develop a better platform for web apps than Firefox (which is definitely possible). I'd use patent-encumbered APIs, which I would share while trying to build market share, and then force my competitors to stop using once they were entrenched. Maybe somebody smarter than me could come up with a better idea, but the point is that it's probably still possible for them to leverage their OS near-monopoly into a web near-monopoly.

It would have been far easier for them if they had started earlier. Firefox would have been easy to kill 3 or 4 years ago. But MSFT has so much money and such a large installed base that they can get away with a lot of screw ups before they really cease to be a threat.

I agree that, for the time being, entrepreneurs don't really have to worry about MS. But they're not really dead. They're just comatose.