Perhaps Ballmer did get the right answer, after all. But was he asking the right question?
It was and is obvious that at some point all phones will be what we call smartphones now. I think Ballmer's point is that even when that happens, the iPhone will not be able to sustain its 16%. It will still have insignificant market share.
Android will not, though. It might get "60 percent or 70 percent or 80 percent", and that's the share that Ballmer would have preferred run Windows.
So yes, I think Ballmer asked the right question and got the right answer. He just doesn't have any way to respond to Android.
Of course he does: he can give away the new smartphone OS. It's not as if Microsoft has never given away software to win market share.
Microsoft cannot just take that market, but they can, and in time, probably will fight for it.
There's constraints of display/keyboard size, and the form-factor encourgaes different usages (eg. less business software).
But I think people might start to dock their smartphones to large displays and keyboards at home (that's what I do with my netbook) - like a portable harddrive. Projectors might also become popular, giving a large portable display.
Or, future desktops might actually be smartphone components, wrapped in a desktop package (in the way microcomputers invaded the workstation, minicomputer and mainframe markets).