There are three major issues that need to get resolved for Microsoft to be competitive and innovative again.
1. Getting rid of Balmer.
2. Getting rid of Balmer.
3. Leveraging the popularity of the Xbox and Kinect to drive Windows Phone sales.

They can't play "me too" with Windows Phone and they also can't design something that is just different for the sake of being different while ignoring any sense of usability standards. I have seen and used Windows Phone Mango and it is not good.

My views regarding Steve Balmer are shared by not only most industry experts but by many, many Microsoft employees. Everything started going down the crapper when Microsoft got too big and the power and decision making flowed through Balmer and his minions of sales people whose only goal was to drive revenue. Bill Gates was a nerd, tech enthusiast and a programmer at heart. Even if he hadn't programmed in 20 years the focus of the company was different when he was at the helm.

Balmer is the last person on earth that people should be associating with Microsoft. He represents everything people hate about evil corporations and mean bosses. He is almost the perfect charicature of the worst boss ever -taken right out of a movie script. he should not be giving keynote speeches at technology conferences standing in front of the press with his shiny bald head, red sweater and arrogant grin. The board at Microsoft has some real soul searching to do. They need to find young blood to run the company and demote Balmer to a less public role. He is not, was not and will never be a visionary or a leader. He must go!