Apple doesn't want this market because it is very low profit margin and you are forced to use low cost low-reliability hardware to make it profitable at all. The loss in reputation and extra headaches with additional warranty returns, etc., make it a less desirable market.
Precisely correct. Apple is a hardware vendor, whose operating system complements its hardware and is the means to sell mid-to-high end hardware.
Apple will never overtake Microsoft overall, because they compete in different parts of the market. Microsoft doesn't do hardware; they depend on cheap-ass PC hardware vendors who are all, at the end of the day, bottom-feeders.
IMO, the reason Vista is failing in the marketplace is not that it is inherently all that bad an OS, but that it is too high-end for the crappy PC hardware most Windows consumers are willing to shell out for.
People who buy Macs are willing to pay more because they expect more, and get it.