It may not be as obvious now, but at the time, IE often offered a better experience for both users and web developers.
IE tended to be faster and stabler than its competitors, and releases like IE3 and IE5 offered a number of innovative features and technologies.
IE coming with Windows clearly didn't prevent a large number of users from switching to Firefox once Firefox started offering a better experience, and then to Chrome once it started generally offering a better experience than both Firefox and IE did.
I would say that the turning point was when HTML 4 adopted a lot of things based on the way IE did them rather than Netscape (e.g. <div> + CSS rather than <layer> etc). By IE5, if you were on Windows, you pretty much had to be a die-hard Netscape fan to keep using it.