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2004: Windows XP Service Pack 2 arrives
In the wake of multiple security problems, Microsoft had focused all its efforts on re-engineering its development process, leading to a new way of designing software and writing code: the Security Development Lifecycle. Windows XP Service Pack 2, code-named "Springboard," was one of the first products to come out of that initiative. As Jim Allchin told Mary Jo Foley, this could easily have been a separate Windows release instead of just a service pack. The decision to release it as a free service pack was a deliberate one, designed to get its significant improvements on as many desktops as possible, as quickly as possible.
And as I noted a few years later, many one-time critics decided by this time that "the interface wasn’t so bad after all (and if you really hated it you could make it look just like Windows 2000)."
2005: The Longhorn Reset
Microsoft had big plans for the successor to Windows XP. It was code-named "Longhorn," and it was filled with "gee golly whiz" features that were going to take the world of personal computing by storm. Longhorn made a big splash at the 2003 Professional Developers Conference (PDC) and a beta shipped in 2004. Unfortunately, most of what was in Longhorn didn’t work particularly well. As the calendar rolled over into 2005, the Windows team reviewed their grandiose plans for Longhorn and scaled it back, throwing away much of the development effort and essentially restarting from scratch.
That decision, which became known as the “Longhorn reset,” was publicly revealed in an embarrassing Wall Street Journal article in 2005. "Longhorn was irredeemable ... Microsoft needed to start over."
(You can see what Longhorn was supposed to be in this gallery from Stephen Chapman.)
2006: Windows Vista stumbles out of the gate
After the Longhorn debacle, it was almost inevitable that the next release of Windows would be a more modest affair. No one expected it to be such a horrible mess.
Delay after delay had conditioned Microsoft's PC-building partners to ignore deadlines. As a result, they were unprepared for the major changes in the Windows driver model that were at the core of Windows Vista. On top of that, Microsoft had deliberately allowed some OEMs to ship with video hardware that didn't support Vista's signature Aero feature.
It was a collective failure. Microsoft delivered a messy glop of code that didn't work well until Service Pack 1, and the OEMs made the experience much worse by packing their products with performance-sapping crapware. The Vista tagline, "The Wow Starts Now," is still one of the most cringe-worthy ever.