Wow, this is very interesting if true. Is there public information backing up the assertion that Microsoft wanted to kill IE as we know it and integrate it into Windows?
I heard it from Molly Holzschlag during a presentation at Microsoft Mix last week. There were members of the IE team all over the place and I think someone would have called her on it if it wasn't true. Or maybe Microsoft leaked the fake story as a cover for an outdated browser :)
It was fairly well publicized in the plans for Longhorn. Quick Google search produced this, probably not most authoritative, but still, source: http://news.cnet.com/2100-1032_3-1011859.html