I have a theory that explains why MS did that.
1. Windows Vista and the currently circulating build of Windows 7 have Windows Defender as a bundled application. It is a pure antispyware product. If you look at the current client security applications, there are actually only two products which exactly complement Windows Defender, without overlapping any of its detection capabilities. The products are Avira Antivir Personal Edition(Free Version) and McAfee VirusScan Enterprise Edition(without antispyware plug-in). As is evident from the following screenshot: http://cid-bbfd51ce0de5cde6.skydrive.live.com/self.aspx/Public/Avira.JPG . Now all other antivirus solutions namely avast, AVG, Norton, McAfee, NOD32, Norman, TrendMicro and even Live OneCare have antispyware capabilities built in. See http://cid-bbfd51ce0de5cde6.skydrive.live.com/self.aspx/Public/Avast.JPG . Many of them(including Live OneCare) even disable Windows Defender upon installation to avoid potential conflicts. Hence it does not make any sense in the first place to give users a free security tool that does half the job and interferes with the solution that the user tries to complement it with. So my take is that MS will eventually strip out Windows Defender from Windows 7. This approach is exactly in line with the work being done with stripping out Windows Mail, Movie Maker etc and replacing them with downloadable, unbundled "Live" applications, which is how Microsoft is pitching Morro too. It is a complete anti-malware application as opposed to Windows Defender.
2. Now why MS pulled the plugs on Live OneCare instead of simply making it freely downloadable along with other "Live" applications - the reason is again the same - to remove overlapping functionality. Lets look into it in detail - Live OneCare includes a firewall, antispyware component, defragmenter, backup tool, clean up tool which Vista and supposedly windows 7 already have; although some of the Live OneCare zealots may say that the versions of these tools in Live OneCare add more functionality than the versions in Windows Vista, but seriously do you expect these better versions not to natively find a place in Windows 7 when it gets released? I think and hope Windows 7 will surely improve further upon these tools, thereby nullifying the need for the current Live OneCare product.
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