I don't think this is an accurate view at all. How can you say they aren't innovating when you've got Microsoft Research still going strong with the fruits of its labor becoming visible in commercial applications such as speech, augmented reality, etc.

Not to mention the open source efforts they've put forth with .NET -- which admittedly is still in rough shape but certainly seems to have a future.

I don't think it's quite right to discount Microsoft entirely and see them as the next IBM.