Trying to clobber Linux would be like trying to clobber fog. Who do you go after?
Easy, you go after the people who would *use* it.
FORTUNE 500 COMPANY COMPUTER GUY: We are thinking about moving to Linux for our desktop systems.
[a puff of green smoke appears and a man in a suit steps out.]
MICROSOFT CORPORATE SALES REP: Allow me to show you this PowerPoint presentation which will demonstrate how the Total Cost of Ownership is lower for Microsoft Windows XP.
FORTUNE 500 COMPANY COMPUTER GUY: Ooh, the pretty colors! The low numbers! I am entranced by your potent marketing acumen.
Of course MS can't stop Linux or the various free BSDs from being developed, they are hobbyist efforts... but they can certainly poison the pool of potential users with their huge marketing budget! If Linux becomes a threat to their market share I bet they start running smear campaigns -- negative TV and print ads, showing how that "free" operating system just costs you time and trouble, AND denies you the latest Fruits of Redmond.
There is one other trick for MS, too... they can push for mandatory Digital Rights Management software in all OSes. You know, the kind of thing where you can't make MP3s from your CDs anymore because it is illegal to make software that allows it. (A gross simplification, but there's already talk on the Hill about this kind of thing.) You can BET that if that technology ever becomes mandatory (highly desired by the record and movie industry), it won't be freely available to all companies... no, someone (MS maybe) will make it with a gov't license, and then you'll have to license it from them to include in your new OS or multimedia software, and that will make it darn hard to include in free software like Linux, which would then in turn become ILLEGAL to produce or use. Microsoft has nothing to lose and EVERYTHING to gain from such a scenario, and it isn't as far fetched as it sounds.
OK, enough rambling.