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This tablet they will introduce will run and support Flash, and will run full Office, Firefox, and the millions of applications out there that run on Windows 7 will run on it. So you tell me which is the better window.
I have a feeling your last question isn't rhetorical, though any sane person with the thinnest grasp of recent tech history would surely urge you to make it one.
What Apple have achieved is nothing less than a tail wagging dog market. Beginning with music and moving onto phones and apps, and then books, TV programmes, magazines, movies etc. at an ever increasing pace, they have totally revolutionized the marketplace.
Providers of the above services and products now look to Apple for not just the lead, but the entire future direction of their business models. Sure, many were reluctant to begin with, very reluctant indeed, but the reality is that the model works.
So, where do you really think Microsoft fits into this scenario? Providing "the better window" - just because it does Flash?? Oh please. If your favourite pizza purveyor isn't already updating its web site to work on iOS, their bottom line will very soon tell them to prioritise the task.
As for the rest of your wish list, soured relations with Google may well be delaying Firefox coming to iOS, but the Mac development arm of Microsoft has a deal of autonomy, and has a history of keeping up with Apple's dev. programme recently. Expect to see either Word and Excel on iOS very soon, or a much improved Pages etc. As for Powerpoint, Keynote had this beat years ago.
As with the propaganda wars, perception is everything. The perception that Microsoft is no longer a player is though much more than that, it's based on reality. The massive time lag in their development programmes is now starting to show much more than ever as they have a much smarter, richer, more verbally circumspect, and much more efficient competitor - again.
But if that was all MS had to contend with, maybe, just maybe they might stand a chance. But they now have a totally random third player in the game. In a three cornered fight, the slower protagonist always loses. Why? Because increased competition, just as in time of war, increases the pace of development.
Your post is full of hope for things to be as MS would like us to believe things will be. Predicting the future used to be enough to keep a bunch of geeks and pundits waiting for whatever eventually emerged from Redmond. Not any longer. When the entire music, film, TV, book and magazine publishing world is re-aligning itself to work with Apple, it's obvious the future has already been mapped out, and the party is planned. Microsoft hasn't been invited... because Microsoft is officially dead.