You're correct, as far as I can tell. First to file changes only how conflicts are resolved when two patent applications pending at the same time claim the same invention. It does not remove the novelty requirement, which means that an inventor is still not entitled to a patent if someone else publishes the invention before the inventor applies for a patent.
So I have two guesses as to how the Windows CE thing came about. Either Fingerworks licensed the patent to Microsoft before Apple acquired Fingerworks, or Microsoft released Windows CE less than 18 months after Fingerworks applied for the patent.