It is actually kind of sad if you know their history.
Back in the day they were competing with Palm, and had Windows CE and Pocket PC 2000. When PocketPC 2002 came out my employer switched over from Palm and I got to rewrite a bunch of tools. They did pretty good for a while with Mobile 2003, and Windows Mobile 5. It knocked Palm down several notches in the mobile market, with Palm losing value and getting bought out in 2005.
I'm not convinced you know your history of devices at the time all that well.
WinCE/Windows Mobile/etc. didn't start to succeed against Palm because of great improvements in Windows for devices; it started to take over because of overt stagnation in PalmOS-based devices.
Palm become successful with the PalmPilot and PalmPilot Pro, in part because it was simple, quick, and worked. It avoided many of the complexities of the PC ecosystem, such as the notion of everything being in a "file" (PalmOS used an in-memory record-based storage model instead), so that people could work with the kinds of PDA data they wanted to work with in a more natural manner.
Unfortunately, Palm saw great success, and pretty much decided to keep on doing what they were doing, without really pushing any significant boundaries. They dragged their feet on implementing a colour display. They dragged their feet adding any form of wireless communication (before the Tungsten era, they only communications you could get were either via the serial interface, or via a modem over the serial interface). Palm OS 6.0 (Cobalt) was in development for a good part of a decade, and in the end never shipped on any device. The business itself went from being a stand-alone business to being bought out by US Robotics, which was then bought out by 3Com two years later. The founders didn't like the direction 3Com was taking the company, bailed, and formed Handspring. Meanwhile, only two years later, 3Com spun Palm off into it's own, separate company again. Two years after that, Palm broke itself into palmOne (hardware) and PalmSource (software)...in another two years, palmOne bought out some of PalmSources IP, and the rest of PalmSource was sold to ACCESS. palmOne became Palm again, merged with Handspring, developed webOS -- and a few short years later was bought out by HP.
Now I didn't have a very large peek behind the scenes -- I was out on the sidelines writing the jSyncManager, once in a while hearing from a manager at Palm, but even from the outside it was easy to see that the serious game of Hot Potato being played with/by Palm led to some serious issues with innovation. There really wasn't any. Developments were iterative and slow. Where they were once ahead of the curve, by the year 2000 they were already falling behind. It took them ages just to integrate their system with a phone! The device and platform was nearly stagnant by the time webOS was released, and while innovative, in the end it was too little, too late -- especially when compared to what Apple showed the world with iOS.
The point being, Windows on mobile devices didn't rise in prominence because they suddenly were seen as extremely good devices. They had a UI with lots of small items that needed a stylus to manipulate, their browser was substandard, and the devices needed frequent rebooting. Battery life wasn't great, and when compared to Palm with it's simplified interface, were a PITA to use for normal PDA uses. Sure, they were great for the Windows geek who wanted to show how they had an underpowered Windows PC in their pocket, and became somewhat the standard for use in embedded systems like barcode scanners, but for virtually everyone else, they were nearly useless. However, they did suck much less than Palm did by that time. PalmOS pretty much hadn't changed in 10 years. It took ages for them to add simple things like colour and wireless networking (and even when they did, that was a feature relegated to only one or two models). The core of the OS was pretty close to stagnant -- they used pretty much the same non-threaded kernel from the original Pilot 1000 all the way up to PalmOS 4. Windows for mobile devices only looked good in comparison to how badly Palm continually fumbled around instead of innovating.
Looking back, considering that Windows on mobile devices (in its various incarnations) was only better in that it sucked less than Palm did, it shouldn't come as any surprise that Apple came in and ate everyones lunches overnight. Microsoft than, as now, took the wrong approach, and Palm just sat around and frittered away their lead until they didn't matter anymore (not entirely their fault -- all the resets and restarts and changes in direction from being bought and sold every 2 - 3 years for 15 years was as much to blame as anything). Microsoft only had the distinction of being the best of the worst -- which is still better than Palm's giving away the market entirely.
In summation, Windows Mobile 5 didn't knock "Palm down several notches". Palm was already actively falling down a notch-filled pit of doom. Sure, this helped Windows Mobile for a short while, but I'm not so sure that "sucking less than Palm" is really all that much to brag about. In the end, the market certainly didn't find it all that exciting.