Microsoft was also productive in the early 2000-s. Windows 2000 was a great OS, making NT ready for the desktop, and a major step in finally fixing the constant bluescreens and crashes of the 9x line. Unlike Windows XP, 2000 had no activation crap and had everything needed for everyday tasks. XP just added desktop themes, entertainment apps and Windows Restore.
Visual Studio .NET/2003 and the introduction of .NET were also major steps, this probably killed Borland because Borland couldn't create a competitively priced products or offer something better than Visual Studio. VS2005 was also a great IDE, with powerful refactoring tools and a really helpful debugger. Plus, it also introduced the free Express editions.
It seems that the whole "rewrite longhorn from scratch" thing and the failure of VIsta put Microsoft (at least the Windows team) back a few years and made them more pragmatic, instead technological advances (promises for WinFS, making everything .NET, vector graphics to make UI resolution-independent just to name a few) they're preferring to make GUI tweaks. I'm very interested to see if Windows 8 finally manages to introduce something new.