>>If I was in charge of Windows that is likely what I would do. Make Windows for Desktop and Windows for Touch, with starkly different UIs and designs, but with some emulation layer so people can run a touch app on the desktop (in like a sandbox window)

Emulation layers don't work; if your operating system needs to emulate needed applications no one is going to use it. Microsoft already has a touch optimized OS: Windows Phone, just port it to tablets. Easy. Done. Of course then it has to compete with iOS and Android on its merits and not because it has Office and can interface with the windows ecosystem and can kinda run desktop applications.