"It's not obvious why this would be true. The marginal cost of making the next copy of Windows XP is no higher than another copy of Windows 95. If I'm going to get pushed to the wall on price anyway, I'd as soon they had XP." - Nick Danger
I'm approaching the solution from a different angle.
MicroSoft's option is to either compete for users who are currently switching over to Linux (e.g. the City of Munich in the article for this thread, along with their 14,000 desktops), or else concede that entire segment of the market over to Linux.
As this article points out, MicroSoft attempted to compete.
But there are two ways to compete: one way is to lower the price of your current frontline software (e.g. Windows XP).
The other way is to offer one of your 2nd tier products for free (e.g. making Windows 95 into Open Source code so that it is just as open and in the public domain as is Linux).
If MicroSoft chooses the first way and discounts its frontline software, then revenues from selling Windows XP will plunge as customer after customer starts demanding City of Munich-style discounts on pricing.
Ouch. Why would I do that to myself?!
The second way is cost free. Windows 95 code is already dead. Microsoft has locked it up in a vault and no longer sells it. If I suddenly make it "Open Source", then customers who want "Open Source" free software will now have an option to choose from **either** Linux or from MicroSoft. So now I'm effectively competing with Linux.
Moreover, my first tier clients are still going to be paying top Dollar for my fresh releases such as for Windows XP, as I haven't had to discount its pricing if I choose this option.