Paul Graham called it : Microsoft is Dead - last year.
Maybe that was an exaggeration, but there's a grain of truth. 2008 is the year M$ is obviously in one long, wrenching car-crash.
They are innovating nothing, *leading* in nothing ... Apple owns the major device-swarm platforms (iPod, iPhone). Sure M$ have their own ... but these are simply "me too" efforts ... always following the trends that Apple sets. They might as well be Toshiba or HTC for all the memetic advance they're making.
Apple own the local user experience; and now Apple are hoovering up developers, and with the launch of Adobe's Flex, the Mac may become the standard environment for the cross-platform desktop application developer. (Don't forget you get Ruby on Rails bundled too.) And all the Unix goodness. The Mac is increasingly a luxury brand for important people and those who think they need to keep up with them.
Google have made massive incursions into everything this year, from Application Engine to OpenSocial to their FriendConnect to Android to GData to iGoogle to the revamped Orkut ... they have all bases covered.
Microsoft have been trying to play catch-up here too ... but trying to buy Yahoo revealed colossal FAIL. (A strategy about nothing more than aggregating eyeballs.) Their shift to advertising, aping Google without understanding it, in disarray. Now this : they've been beaten in the only advertising market that really matters.
Suddenly (and really, it's come up quite fast and unexpectedly), it really is too late.
They're no longer a playa who seem to be slipping up a bit. They're *gone*. A has-been. We expect nothing from them. No innovation. Smart people don't want to go work there to help them. Gaping Void's sly, edgy icon is empty. M$ can't change the world any more ... it's already changing too quickly under the seismic influence of Google and Apple and Nintendo. All they can do is try to tag along or watch helplessly from the side-lines ... until it is time to go home.