Today MSFT sells Windows Home/HP for $x to lots of OEMs, who don't like paying that price, but don't have much choice, as their users 'want' Windows (want='think they want, because they dont know anything else'). OEMs say to MSFT 'we wont pay $x for Windows on netbooks, it's too expensive, sell it to us for $y'. But if MSFT sells Windows for $y for any PC then they lose $(x-y).(# of non netbook PCs), which would massively hit their share price TODAY. They can't do that, so even though they know that one day they will have to give up the $x price they do what they can to keep that price as long as possible (aka cash-cows are for milking, not slaughtering). So they invent a new product, that no self respecting OEM would sell on a decent PC, slap a $y price tag on it, and say to the netbook buyers, 'there you go, a version of windows for $y', while they keep selling the main version for $x. The fact that that version sucks is painful for MSFT, but not as painful as selling all Windows for $y for all PCs, nor as painful as being seen to do nothing in the netbook market.
Summary: this isnt about MSFT being dumb, its about MSFT keeping their cash-cow alive so that the share-holders don't slaughter them today, even if it may be bad for long-term (~5 years) shareholder value. (x >> y)