Valid point, that VM technology is only 4-5 years old. I'm using it everyday, and my users have VMs to run older applications -- exactly what you describe. It does work.
But sooner or later Microsoft has to bite the bullet and break with the past, not carry it around in their pocket.
Microsoft still has the marketshare and clout to do it, they just can't admit that:
They probably will break it after 7. But a ground up rewrite will take a long time. We’re working on something similar, completely rewriting an app that’s been around for a long time, actually it’s carrying DOS baggage just like Windows, our app is much much smaller than Windows and it’s a project that’s going to take a minimum of 3 or 4 years and that’s assuming we don’t have to shelve it periodically to do some bill paying stuff. One of the biggest challenges we’re having is actually mental, it’s hard for everybody to remember it’s NOT the old app, we’re constantly tempted to do things the “old way” because it kind of works and have to be reminded (sometimes loudly) that the old way is a 25 year old dinosaur with a legacy of kludges that we’re trying to get rid of.
It sounds great to cut the ties and dump the baggage, but then you actually have to do it. Notice nobody has ever really done it before. Apple is the only guy one to really go for a from scratch punt and even they included the “classic”. In software the ties to the past are the assurances of a “safe” upgrade. The trick is finding a way to do it without carrying forward 30 year old bugs.
I don’t think they’re going to take that much of a beating, at least in the pocket where it counts, they’re always getting beat up in the press. Until the recession got going full bore Vista was being adopted at about the same rate XP had been, there were a few great headlines about Vista hatred but the market penetration was actually going pretty well, not stellar, not like Windows 95, but nobody really cares about the 64-bit jump it wasn’t anticipated like the jump to 32. The recession kind of hosed that as the new computer market has taken a vicious beating on all platforms, but MS is still making the bucks even with the recession.
3. They blew it in the early 90s by telling Dave Cutler to redesign his OS around a 32-bit version of the Windows 3.0 API.
They could have had a great OS if they’d let Cutler do his genius, but Bill wanted to leverage the popularity of Windows 3.x into NT. It worked insanely great from a business standpoint, but it sucked from a technical standpoint, and Microsoft products are suffering for it to this day.