Vista made some good advances. For example, the number one cause of hard crashes (blue screens) in Windows 2k/XP has been video driver crashes. In Vista and Win7 if the video driver crashes the OS can recover, instead of lost work and frustration as your computer reboots you get a little pop-up in the system tray. Yet few users appreciate this because MS is bad at marketing this sort of thing.
Out of the box, Vista's default configuration made for a hostile user experience for both novice and sophisticated users. Vista was still a decent OS upgrade over XP, but it took a lot of work (in learning and reconfiguring Vista) to get to the point where it was worthwhile.
Moreover, there quickly sprouted up a negative user impression of Vista, even among those who had never used it. Given that there was little in Vista that was "must have", this hurt sales greatly. In reality Vista was as much, if not more, of an upgrade over XP as XP was over 2000 (another flawed, but overall worthwhile OS upgrade). Yet excessive negative public opinion squelched the regular upgrade path.
Overall, Vista's lack of success was a boon to MS because it forced them to buckle down and really succeed with Windows 7. It's better to fail spectacularly and get a wake up call than to fail a little more with each release until your product is irrelevant and unprofitable. Win7 is a truly worthwhile OS upgrade, MS should thank whatever deity that they got a kick in the pants when they did.