That's the state of where things are. Still, there are obvious moves that Microsoft should make. For instance, find out who the folks are that have been playing politics and prevent the really smart folks from shining and get rid of them.
Also, get rid of the protectionist attitudes there. Get rid of those who thought new Microsoft products would cannibalize existing ones like Windows or Office. Courier could have been Microsoft's answer to the iPad but it was killed off as many suspected for the likelihood of getting people off the PC. This includes webapps and services that could have rivaled Google. Instead, we got Bing (which isn't bad but doesn't do anything better than Google search).
Look at what's happened. It's an iPad world in the beginning and with an increase shipment of Android tablets, both Apple and Google's tablets have cannibalized PC sales. Apple was right about iPad cannibalization of Mac sale. It's better to have one company's own product cannibalize another of its own product than to get a competitor do that.
Also, bring back the innovative and entrepreneurial energy of yesteryear. And I mean really unleash it. I like Microsoft to do a 20% thing like Google did for its employees. Microsoft has just as deep a bench as anyone else when it comes to talented scientists and engineers. Let them go nuts.
Simply put, don't fear your own creations and innovations as Microsoft been doing.