@davewill: I think to be relevant a OS must not be only business oriented. Once Steve B. said that cool starts with consumer and I think there is much true in that statement. I think Microsoft needs to have a clear strategy for its own embedded OS, but is making it free the answer?
i.e. if I were Micrfosoft I would invest a lot in products like NetDuino...
Most consumers don't think about the OS when using an embedded system because most embedded systems are either headless (e.g. a fridge) or use a custom non-minizable UI that obscures any of the branding of the OS (e.g. a car or ATM).
Since the branding is obscured, people hate or loving the device doesn't translate into any brand improvement for Microsoft, so why would they sell it for free? No normal consumers buy embedded OSes directly, so making it consumer orientated seems like a waste of time.