I'd say 70% of the projects I know about in MS use .NET.

All web sites are of course written in ASP.NET. Giant portions of the Xbox Live service are written in .NET. Heck lots of tools and utilities are also .NET based.

Is someone going to rewrite IE in C#? Not likely, that isn't what C# is for.

I think that sentiment comes from Microsoft saying back in the day (if I remember right) that they were going to rewrite much of their user software (such as MS Office) to use .NET.

Exactly. I doubt there's a single piece of .NET client-side software that a non-geek has heard of (Word, IE, paint, etc.).

Microsoft uses .NET a-plenty. Saying that brief marketing hype of over a decade ago isn't lived up to is a bit disingenuous. MS ships numerous apps in C#. Check out the Windows Store and WP Store, I know for a fact lots of MS's stuff in there is C# based. I cannot say for sure what Desktop apps are C# based because, well, it isn't exactly obvious!

C# isn't being used as a systems programming language, but it isn't meant to be one. (That said, I've written high performance code in C# before, you have to know what you are doing and understand your GC, same as writing high performance code in Java!)

Tons of LOB software internal to MS (indeed I'd say the vast, vast, majority of internal LOB software) uses C#. Lots of plugins and extensions to various tools use C#, and I wouldn't be surprised if lots of the PowerShell Cmdlets and Modules are C# based.

Now I have worked on a number of commercial projects that were written in C#, but of course I am unable to discuss them!

(None of this is spoken of as an official MS employee of course, it is not but my own opinions!)