Longhorn failed because MS tried to be too innovative within the scope of a single OS release. In some ways Microsoft was more innovative under Ballmer than Nadella--see e.g. the radical Midori OS that Nadella killed, or Microsoft Research's highly productive Silicon Valley campus that Nadella shut down.
What are some notable examples of innovations that came from MSR Silicon Valley campus? In my opinion nothing notable has ever come out of MSR, regardless of campus. Microsoft is needing to rely on third parties such as OpenAI because MSR seems incapable of contributing anything notable to AI.
One notable thing that came out of the Cambridge (England) campus was the implementation of generics in the CLR.
As https://www.microsoft.com/en-us/research/blog/meteoric-rise-... reminded me, they were on like 20% of the SIGGRAPH papers in 1996. And several have stood the test of time, like Hugues's Progressive Meshes paper (https://dl.acm.org/doi/10.1145/237170.237216). A little later, the spherical harmonics paper (https://dl.acm.org/doi/10.1145/566570.566612) was basically all MSR (I think Jan maybe interned there while at MPI? It's been a long time...).
That isn't to defend anything in AI, but it's not the case that they had no impact. The oral history thing there claims that the first grammar checking in Office 97 came from their NLP work.