Innovation and milking monopolies generally require different skills and attitudes. MS has tons of people good at the latter (starting with Balmer) and that very fact acts against them when it comes to innovation. Any innovation that happens (C# and LINQ come to mind) is limited in scope and is the work of individuals below senior management. These innovators have very little to do with steering the company.

If MS wishes to innovate they should start by firing or sidelining a lot of the entrenched senior hierarchy. Easier said than done.