Yes, they have the right to do so. It might be a bad idea for them to do it, but being their APIs they most certainly have the right to do that. Microsoft has no obligation to provide services to their competition free of charge just because someone out there feels it is the right thing to do. Of course, various court systems may disagree with me considering it is Microsoft.

The line is clear, the source of the service has the right to do whatever they want with it. Unless you want to claim that a company's property belongs to the people.

first of all, I am not sure they do have that right. Certainly if they tried, it would open up questions of the scope of user rights (do I, as a user have the right to run add-on software on a Microsoft platform independent of Microsoft's wishes), the scope of copyright (does 17 USC 102(b) provide a safe harbor for interoperability and prevent a software vendor from using copyrights to deny areas for competition), and the like. And that's before getting into anti-trust law.....

So I think in Microsoft's case I would argue that they have a) no legal or moral right to impose such and b) no effective mechanism to enforce such conditions. They make practical tools, and people may use those tools in whatever ways they see fit. To the extent Microsoft can limit this through a EULA, they are subject to all sorts of judicial scrutiny.

For example, I have a hard time imagining that a "you may not run a web server on this edition of Windows" would be enforcible. Client access license requirements might be in some cases but I don't know what the dimensions are that they would be.

The question with Craigslist only becomes harder because to interoperate you are interacting with Craigslist's infrastructure. This is of course covered arguably by a different set of laws which may give Craigslist a bit more freedom. But we have laws in many states that restrict what, say, shopping malls can require of people entering (a shopping mall in California, for example, cannot prohibit pamphletting).

I would like to see similar rules passed regarding the internet equivalent of shopping malls, to be honest.

I apologize, I should have been more clear. I agree with you about Microsoft and limiting things for third-parties in Windows. They've gone too far to be able to do that, Apple might be able to do it but they're quickly reaching that point with OSX. I was speaking more of APIs that Microsoft might create for various things web-related, as it relates to the story about Craigslist.