First, bundling the browser with the OS was absolutely the right thing to do, there's no greater indication of this than that every single modern operating system comes with a bundled web browser. MS may have been guilty of a lot of other anti-competitive activity, but decrying the bundling of the browser with the OS is just silly and naive.

Second, people seem to misremember just how crappy Netscape was then. Netscape 4.x was a travesty, it was buggy, slow, and crash-prone. IE 4 really was a better browser at the time (honest). People complain about the problems of supporting IE6 today but supporting NS 4 was so much worse. Not only was it far less standards compliant than IE at the time (if you could imagine it) but simple things like using an external style sheet could cause the browser to crash reliably. We know now that much of these quality problems were due to AOL mismanagement and a completely unnecessary full rewrite of the browser core, nevertheless, such was the state of browsers at the time.

Fortuitously, MS woke up to the importance of the web, started putting real effort into IE development, bundled the browser with the OS, and used a few other dirty tricks at just the right time when Netscape was floundering. IE dominated the market shortly thereafter, but such a dramatic change in marketshare was possible only because Netscape was not a serious competitor at the time. Netscape development continued to flounder until eventually they just gave up and decided, like SCO, to pursue their futures in court rather than in the marketplace. They gained a partial victory in court but it was utterly meaningless as they had lost to such an astronomical degree in the market they had no hope at that point. They dumped the mess of code they had on the open source community which spent several years working on it before it was even remotely worthwhile, and they ran, eventually completely killing their entire brand (an impressive achievement).

Now we see, though, that quality browsers like FF, Chrome (and to a lesser extent Safari and Opera) can and do compete against a bundled browser like IE. IE is still losing marketshare while FF, Chrome, and others continue to build it, over time this will add up and IE may yet be dethroned in the near future despite all the purported insurmountable advantages of OS bundling. I suspect that these trends will only accelerate, as the tech-leaders of today shun IE as their personal browser and IE is very far behind in supporting not only the web standards of today (e.g. css 2) but the quickly approaching standards of tomorrow (css 3/html 5/ws/etc.) When you can make nice looking boxes with rounded corners and drop shadows that work for FF, Chrome, and Safari users with 5 seconds of work by adding 2 lines to a css definition then the cost/benefit differential for supporting different browsers starts to change dramatically, with IE very much not on the winning end of that equation.

The difference you're missing is the difference between "the browser" and "a web browser". Best scenario: operating system comes with more than one, and the operating system doesn't try to force the user to default to any particular one.

What Microsoft did that was (in a sense) "evil genius" was that it managed to brainwash 85 percent of its users into thinking that "Internet Explorer" was the only way to get onto the Internet.

I was teaching a PHP primer class (primer, since it was composed mostly of non-technical people) at Hacker Dojo, and one of the students was like "what do you mean by web browser?". Seems we still have a little bit of ignorance to overcome.

It's also interesting you say that Microsoft managed to rename the web "Internet Explorer" because in Tim Berners-Lee's book he says that after Mosaic was launched and was beginning to become popular the people behind Netscape were trying to rename the web themselves and he wasn't very happy about that.

Again, I think bundling is a side note, people concentrate on it because of quirks of the law which made it a cornerstone of the anti-trust case against MS. The real reason MS won the browser war was because they pushed when Netscape was most vulnerable. The simple fact is that the change in marketshare from NS to IE during the browser war is too great to be accounted for entirely by anything that doesn't include lots and lots of active NS users consciously switching to IE. That doesn't fit the narrative of the unjustly wronged spunky little david (coughAOLcough) going up against the evil goliath, but that's the way it happened.

MS has plenty to answer for but the extended period of IE browser dominance is as much due to Netscape/AOL's massive mistakes as it is to Microsoft's cunning.

I'm not one of those people, but the end-result of the Browser Wars, was that once Microsoft won they spent less.. and less.. and less.. resources on Internet Explorer. The entire goal of Internet Explorer was to defeat Netscape so that Netscape Communicator wouldn't overtake Windows as the place to run applications. Bill Gates has openly decried the idea of the browser becoming the operating system (though I don't know about recently).

So Microsoft made a great product, but in the process set back the development of web browsers by years (since their goal -- as I see it -- was to eliminate the competition so that they could steer the market into stagnation).

Netscape certainly dropped the ball, but MS didn't with the browser wars on merit alone.

Edit: s/with/win