There is something cheaper than free. It's called subsidized, bundled, marketed and supported.
Subsidy comes in many forms. Co-op dollars. Distribution channels. Branding. An applications ecosystem.
Microsoft has spent nearly 30 years building all this. While we in the Linux advocacy business like to dismiss it, in the commodity desktop or laptop market its impact is real.
This no longer means Windows owns the future, as was once the case. Client PCs are declining in importance year-by-year.
Servers, and the Internet cloud, are becoming more important. Linux dominates there but Windows is competitive. Handheld Internet terminals are becoming more important. The iPhone dominates there but Linux is competitive.
Can Linux make any headway in the desktop-laptop market? There are niches where it's welcome.
There are increasing numbers of applications that work well on Linux desktops. There are language markets which offer opportunity, where national interests will in time trump the interests of the Windows ecosystem.
But that's not where we should be looking, and I don't think it's where Microsoft is looking, either. Once you're at a price point of $100-200 your software costs are near zero. The victory over Negroponte begins to look pyrrhic.
What's far more dangerous to Microsoft is that it has yet to squeeze Windows Mobile into a compelling handheld offering, and the open source ecosystem gives Linux a better-and-better story to tell in the enterprise space.
That's where the game is now. That game is far from over. It has barely begun.