Oh the horror! A company dominating it's market gave one of its products away for free! Where's Janet Reno when you really need her to launch an antitrust trial! /SARCASM
The determination of monopoly abuse is far more involved than a simple sarcastic statement. In any case, Microsoft's statement at the time was that their free VM software was not in response to VMWare's free license, but because they were planning to ingrain virtualization in "Longhorn" anyway. And it looks like that will be in Vista server.
And I assume you were talking about Explorer/Netscape. In that case, Microsoft's stated goal was to "cut off Netscape's air supply." That is a reason Microsoft got into trouble.