Microsoft made a big mistake ten years ago: Windows XP. No, it's not that it wasn't a great selling product, one they have trouble displacing now (although that is a problem for them), but it was the fact that XP replaced both 2000 and Me.
ME wasn't the greatest of operating systems; the DOS based kernel was well beyond its prime by 1995 with Windows 95, and the NT kernel was the future, but consolidating both their home and business strategies into one platform was a huge mistake. Home and business are very different use cases, and each deserved a commitment from Microsoft.
This strategy has dogged Microsoft through Vista and 7, and sees no relief in XP. To the detriment of Microsoft, they've now had to back out a lot of code from the NT 6.1 kernel in Windows 7/Server 2008 to remove unneeded vestiges of a desktop OS from their headless, gui-less server strategy.
Visual Differences
There is also little visual difference between their corporate and consumer systems. I'm not advocating different user interfaces entirely, part of Microsoft's success is a familiar interface is available at both home and work, encouraging people familiar with one to buy the other. I would advocate using distinct visual cues to differentiate the two products.
Branding differences between the business and home versions should be important. For instance, if you have ever used the basic interface, often found on servers or when using Remote connections, you have seen the Windows 2000 like interface available underneath the fancy "Glass" interface.
That basic interface, if trimmed out and applied evenly, would present a real no-nonsense business feel. It would allow Microsoft to have a similar interface, with all he familiar controls, but provide an easily visible distinction between their business options and their home options.
Architectural Differences
These two new versions should also have certain fundamental differences. In home versions Microsoft could take a page from Apple, something they moved into tepidly with Windows 7, and regularly drop outdated features from their operating system. Most home users do not continue to use the same applications from Windows 3.1 almost two decades later.
Certainly some users would have difficulty with this, and for them an upgrade to a "Business" version of the operating system would be needed. Overall, this strategy would allow Microsoft to move their system forward at a much faster rate, and encourage developers to come along.
Business users will always need to keep using ancient legacy applications for far longer then is present, and solutions like rootless XP emulation; Apple's Classic mode, 680x0, and PowerPC emulation; and other similar solutions are the answer. In a business environment, where these applications are sometimes necessary, having an easily configurable and manageable application emulation environment is the right solution.
For security reasons, it would be very important to have each of these legacy programs to run in an isolated virtual machine, and only permit specific programs to have access to the VMs. Microsoft could even charge separately for legacy application services, both justifying it and encouraging people to move on.
Fundamentally, though, business users and home users have different needs, even running the same software. Businesses support legacy programs, need tight security, and network integration. Home users want flashy interfaces, games, and minimum setup hassle. One OS that attempts to do both can only be compromised.
Mobile Space
At least in the mobile space, Microsoft has been making progress. Windows Phone 7 and the Zune OS are movements in the right directions, but it's unfortunate that they are not given the same kind of attention that Apple and Google give their mobile OSs.
Microsoft needs to aggressively update their mobile products to attract and keep users. Users are concerned that Microsoft is going to allow its mobile strategy to stagnate, and at least in the short term while the space matures they need to show their commitment.
Perhaps the solution is the same as many have been calling for: Microsoft needs to break itself up into smaller companies. A smaller, leaner Windows company may be able to move with the speed needed when you are no longer the standard, but now a competitor.
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