The only reason I read the comments on this story was to figure out what the heck Microsoft could have been doing all this time. Microsoft has a bad reputation with regard to the quality of their code. But they have a really good reputation for shipping products. I also know some really smart people working at Microsoft - and I'm sure there are lots of others I don't know.
So I'm trying to figure out what all these smart people known for shipping products could have been doing all this time. The only thing that makes sense is a scenario like the one you described. In other words, that the management had some unrealistic requirement that they were unwilling to compromise. Porting mountains of existing code to .NET sounds exactly like one of the few things that could have bogged down so many smart people for so long. Maybe Microsoft finally is too big for their own good and they're collapsing under the weight of all the pointy haired bosses.