Yeah, the reason the Register used the word claimed is because Shuttleworth has no idea what MS is charging OEMs.
Giving away XP for free doesn't harm them at all, because that is not their current generation OS. What it does do is establish a beach head for the trimmed down OS which they will charge through the nose for. MS plays the long game, that's why they're successful.
Why do you think they turned a blind eye to piracy throughout the eighties? You think that didn't hurt their bottom line?
Personally, I don't think that Linux is going to make much headway in this market. They should put all their efforts into getting it onto as many phones and set-top boxes as possible. I keep saying this, don't attempt to take Microsoft head on - you will lose!
All they need to do is lower prices and you're back to square one. Attack from the flank; that is where the company is weakest because it suffers from terminal tunnel vision. It really cannot see anything beyond the desktop.
Netbooks ARE the surprise attack. No time in history has Linux desktop had such broad adoption, and it's all thanks to the netbooks. In fact netbooks are a market that started with Linux, the first Asus EEEs were Linux only. Linux was chosen because
it can run on low powered hardware and it lacks license fees, both critical to maintaining the low price of netbooks. Microsoft had to come running to Asus, not the other way around.
It's Microsoft that's trying to catch up here, and it wouldn't surprise me if they did give Windows XP away for free to try to dominate netbooks like they do other PCs. Seeing how netbooks are very tight margined, I have no reason to doubt Shuttleworth on this.
Even a free Windows might offer Microsoft some respite, but it's not going to stop Linux on the netbook by any means.
Freescale is going to put out ARM netbooks are coming in April, ~$200, running Ubuntu most likely. This will be huge. And Microsoft could pay Freescale $100 per install for all it matters, it wouldn't do any good WinNT doesn't run on ARM.
Lets just see if Microsoft will have an ARM port of Windows 7, and somehow get all their ISVs to make ARM ports, while justifying license fees. I don't see it happening. Good luck anyway! But anyway Ubuntu already fully runs on ARM - all software inclusive.