I think MS is dragged down by legacy applications and unable to find a way to free from its own shackle. For example, Apple didn't turn OSX into a iPad because they know it will fail as XP Tablet years ago. Apple managed to set new market without the shackle of lagacy support.
I know there is tons a reason why MS is limited to do many things at this point. But, I think thebigger problem is, MS is directed by business people, not scientists or artists. Even the current Windows tablet is mind boggling. I mean, the UI is simply not build with touch from the ground up, it is Windows from 90s, And the "APPS" for windows are not build with touch in mind as well. Bllmer just wanted to repeat the same problem again.
Windows Phone 7 is a nice change, but, I fear they only do this because they flopped at WM, not because they wanted to evolve WM. And that's the same problem with Windows. I fear they wouldn't care Windows evolution until it flops just like WM.