Linux suffers from the Chicken and Egg syndrome, aka Catch 22. You've got to have marketshare in order to convince big game and application developers to write for your OS, and you don't get big marketshare without first having lots of good games and applications.
So where Linux makes sense is where the big games and applications don't factor in (e.g. servers, driving proprietary stand alone devices, etc.).
Linux also suffers from the perception that its existing customer base won't pay for games and applications, but will gladly steal them. A pirate OS is only going to go so far...unless something big happens such as a change in the equation for stand alone devices and/or available games/applications.
Such a change could be that MicroSoft releases Win95 into the public domain with the properly tailored license agreement. Developers who needed a "free" OS would go that route in order to be in the larger marketshare with more applications and available games, which would also allow MicroSoft to eat up the current Linux marketshare and sell MS apps to that group without the expense of porting MS apps and games over to Linux itself.
Another potential change would be if a Sony or an Apple started making its Playstation or OSX games available for Linux.
Sony, Apple, or MicroSoft could also revolutionize the Market by buying TiVo, installing their own OS onto TiVo boxes in place of Linux, and then offereing their big games and applications to the TiVo/DVR community...effectively capturing large swaths of the current home-TV-Computer market that is emerging. Frankly, it's only a brief matter of time before the major DVR players introduce games and office applications on a broad scale into the market. Apple alone could *double* its current U.S. marketshare by paying a few hundred million for TiVo. Sony could knock off Dell by doing the same thing.
The computer, TV, telephone, and Internet are converging more and more with each passing day. This brings up market opportunities that didn't exist a few years ago. Someone will eventually take advantage of this changing landscape.
A simple license agreement would stop Wine from having Win9x, if MicroSoft wanted to bar Linux rather than coopt it like the Borg.
What would releasing Win95 into open source accomplish for MicroSoft? It would give MicroSoft more desktops to sell MS Office and Age of Empires.
Right now, sole source proprietary hardward vendors like TiVo are limited to Linux or some flavors of Unix (ha, redundant statement) to ship a "free" OS with their DVR's.
Give them Win95 and then they can ship something that MicroSoft can charge for downloading games to.
So the plus side of releasing Win95, for MicroSoft, is that it will enlarge MicroSoft's market penetration.
The downside for MS not releasing Win95 is that MS constantly runs the risk that someone big such as Sony or Apple will figure out how to coopt the existing Linux marketspace, e.g. by either buying TiVo or by porting their games and applications to Linux...either of which would give Apple or Sony millions of new desktops to sell new software.
Does MicroSoft want to be the dominant home-tv-computer/business server vendor, or will MS delay long enough for another player to grab those markets?