Don't let me put words in other mouths, but the reason tomsaffell is saying that if MS sells a $y-priced version of Windows for netbooks that they'll end up losing $(x-y)(# of non-netbook PCs) is this: if there is a fully-functional* Windows version on the market then all contemporary Windows versions will tend to that price. Users will say "why do I pay $x for Windows when John Q. Otherguy got it for $y on his netbook?".

The only way that users won't say that is if the "Windows for Netbooks" is lousy in some way or another.

*(Means something like "works the same, except for feature Z" where Z is sufficiently obscure)