It's not a question of not understanding how their own software works; it's a question of not understanding how their own software works on a near infinite combination of hardware/driver/software configurations, 99% of which they haven't even seen. The fact that Windows boots up at all is a constant source of amazement to me.
Bear in mind that Apple used to have similar problems caused by dodgy installations with hard-to-trace problems (and they make all the base hardware) until they stopped doing massive roll-up releases.
Would folk rather trace the problem in a small incremental change, or wade through a large service pack?
And since when have people started taking the Register's 'sources close to the team' stories as the universal truth?
I'm certain people would rather not deal with installing 300 separate updates by the next Presidential election. Microsoft seemed to not have much of a problem with service packs or roll-ups before. Also, the cross section of hardware variations is smaller this days.
And this is about Microsoft knowing how dependencies work between all of the individual updates, which all install separately without blue screening a computer. Hardware has nothing to do with it.