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Why do I think Microsoft is fine?

1). Incumbency.

Microsoft only has to be "good enough" - to an extent. They'll lose market share, true, but so? Having 30-50% of any market is nothing to sneer at. Besides - that would seriously free them from some of the Justice Department things. And that's not desktops, which I think Microsoft will retain at about ~80% in 15 years. No decline for another 5-6 years, then as Linux gets useable it'll accelerate with college students who'll continue to use the software when they leave.

2). Resources.
 
I'm sorry, but the amount of money Microsoft makes is insane. The number of very smart, very dedicated people at Microsoft is very large.

The main problem isn't doing something - it's figuring out what to do. Unless they make a series of very, very, very bad mistakes and learn absolutely nothing, they're doing fine.

3). Brand.

Yes, Microsoft has a brand problem. But: it still has more brand recognition than many, many other companies.

Collectively, all Linux distributions have less brand recognition than Microsoft. That's changing, in large thanks to recent press coverage by BusinessWeek, etc.

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I've forgotten several more than I was going to write, but a final thought:

One real reason you think that Microsoft is doing badly is because of the culture you're in. Most people don't care about computer, or anything to do with them. Yes, "geeks" are early adopters - but not everything reaches the tipping point. Simply because you recognize Google, and know about its features and history, marks you as different.

Know that most people don't know that Google Labs exist? Never thought to click on the "more..." link. They don't know Froogle, or Local, even though it's above the search box. They don't look for it. Just go to Google and hit "Enter". That't it.

Sure, a large potion of people know most of Google's features. But 20%, 30% of computer users isn't much - for such a basic thing.

I'll give you the fact that many developers flock to OSS and Google. But the actual users? They don't care about 99% of OSS, because it's unuseable. Not that it's bad - just incomplete. But most OSS projects never roll out to mainstream, and those that do - Firefox - have limited success. Firefox adoption is slowing, remember? There's a certain market segment that it appealed to, and that's nearly filled up. More people will continue to use it, but more will continue with IE. And the 20 million (or so? Not sure) AOL users will almost entirely switch to the AOL Browser when it's out of beta in a few months. It's very good, and quite a bit better than Firefox.

Will Microsoft have monopolistic control, be the only real choice? No, it won't. But that actually helps Microsoft.

Not only will they be legally more free, but they'll actually be able to compete - which is something they're very good at. Microsoft plays far better as the underling than as they incumbent - or even the equal competitor.