Exactly how did MS set the web back 5 years?
Oh.. that 5 year span when NOTHING improved on IE? That piece of time between the death of Netscape and the advent of tabbed browsing (and RSS feeds) on Firefox? The lack of innovation certainly WAS Microsoft's fault. Not only that, it was their plan - eliminate everything else so they didn't have to spend money on competition.
People used IE in the early 2000s because it came with the computer. Microsoft had won the desktop wars and with it, everything else. The era of being cross platform was gone. Everyone clicked the Big Blue E to get on the Internet and nobody was going to PAY for Netscape. IE was the logical choice as most people thought Microsoft was the only source for computer software. Under threat of never seeing your precious Word and Excel documents again, they were right.
The ability to stifle innovation (including their own) came from two things; Microsoft Server Extensions and tolerance to really bad code, both of which were a good thing in a way. The big problem with Netscape at the time is they were trying really hard to be W3C standards compliant and, except for the addition of Java to Netscape, things moved very slowly. Microsoft grew impatient with the W3C and leapt out way ahead with Server Extensions, those little addons which made the browser much more like a client-server relationship instead of the stateless relationship originally intended with browsers. Front Page made it easy to activate complex tasks by moving the heavy lifting to the server and calling it with a simple trigger in HTML.
Of course, Server Extensions brought many new capabilities never before seen on a browser, something the W3C couldn't keep up with and it was never Microsoft's intention to standardize them (as in go through a standards committee to define and publish the technology). The problem was that all these sites were "IE Only". Microsoft was VERY close to ensuring anyone not using a totally Microsoft technology chain on the Internet saw a blank screen. In other words, they nearly owned the Internet.
IE's tolerance for bad coding was good for IE users as it rendered pages with broken code pretty well. Microsoft handed out a lot of free copies of Front Page to create this broken code which would render with unexpected results on other browsers. Front Page (and plain bad hand coding) made anything other than IE look illiterate. That's the price of sitting around on your hands. Microsoft was there to take it all away in a long series of brilliant chess moves... and then everything went thud for a while.
It actually functioned rather well when it was novel, but nothing moved in terms of real technical advances unless Microsoft was threatened by some shred of competition which was quickly squashed. The next software patch would allow IE to do the same thing for free but for Windows only. Otherwise, Microsoft pretty much sat on their asses and took their sweet old time releasing anything new. Innovation was dead as long as nobody dared try to use anything else.