dhpeterson
Then, Miguel and the gang came along and wrote Mono, and pretty much re-implemented everything of value from .NET, without the licencing overheads of running in a windoze only environment. That basically took the wind out of the sails for Microsoft, and they've been floating around, almost impassive, pretty much just watching the emergence of ASP/SaaS computing, web 2.0, AJAX, Ruby on Rails, blogging, wikipedia, bittorrent, skype, asterisk and everything else from the sidelines ever since.
I think the real problem comes back to people. It's a bit like Paul's articles on Great Hackers and what motivates them. I know plenty of great hackers (and I would like think that a couple of startups later I am at least a good one! - though I find myself more and more on the business side in recent times, growing our company and developing our people - good young hackers themselves). I even used to know a few guys at Microsoft (Australia and Singapore). The last "good" person that I knew who went to Microsoft (from a PhD programme at Melbourne Uni) joined in 2002. Since then, nobody I know even went near the place. If you can't attract great people, then you won't build great products, and everything else is a forgone conclusion. Microsoft has built great cash-cow businesses, and great fortunes for its founders, but I don't believe it will ever be a player again.