Well, microsoft WAS doing that (cough vj++, or whatever it was called). However, sun forced them to stop all 'innovation'.
The main problem with that, and also today, is that microsoft develops for microsoft technology. All departments have a common 'goal' to achieve, which is to benifit microsoft (of course, why wouldn't they?? that's what ALL companies do).
Now, imagine for a minute that MS's development tools department (VS, .NET, etc) was a different company, not owned by microsoft. I'd imagine that they'd see an opportunity to develop for other environments (OS') like linux, or mac. But still, you really can only truly innovate by creating your OWN product. Why SHOULD microsoft innovate and develop for java when it is limited on what it can do with it?
It's the exact same thing you get when you use a third party tool (Crystal Reports, databases, etc). Sure, they provide great functionality, but when you want to do something (very) specific to your needs everything falls apart. You must do things how the library specifies, or things will just not work.
But if you were to be able to (and have the resources to) build your own, you can ensure that from the ground up, it is built to do things the way you NEED to really innovate and do something different with your product.
I fully understand why MS is choosing XAML over SVG, Avalon over GTK (haha), or Indigo over (??), and why they chose ASP.NET over (insert other web technology here), and .NET over (J something.. i can't remember).. They are able to make the ENTIRE development experience much better, seamless, and integrated. We can (and will be able to) do things we have never done before, and be so much more productive..
The only thing that MS needs to do is document and submit the basis of these innovations to a standards commitee (like they did with .NET/CLR, etc). Especially for Indigo (so different os' can eventually talk to eachother), and XAML because i fear that it might be the next Windows-only version of HTML.. (since it can be run in a browser window).
phew.. good to finally have a forum to get that off my chest. (: