Microsoft as a hardware vendor
Balmer's response is understandable considering their track record. Microsoft's foray into the hardware world has been far from impressive.
The XBox is really just a glorified PC... the original one was exactly that just stuffed into an X-shaped box (which is why it ran Linux so well - or maybe that should be why Linux ran so well on it. *sigh* I miss XBMC *sigh*).
We've all seen the results of when Microsoft had a go at designing the XBox 360, I believe it's referred to as the 3RRoD. Quite how they managed to fuck up building a PC and putting it in a dull greyish box is beyond me.
Zune is probably best forgotten about. It appears that Microsoft want everyone to forget about it. Apple aren't losing any sleep about losing any iPod market share to Microsoft. Creative are a bigger threat to their revenue stream than Microsoft are, and despite the Zen et al being technically equivalent (some would say superior) to the iPod, it's not a serious threat.
Microsoft's mice and keyboards are somewhat overpriced for what they are but generally they're OK, I guess .... but then again how hard can it be to manufacture a mouse and a keyboard? Surely even the mighty mighty Microsoft aren't so inept that they can fuck that up.
Microsoft is a software company. In my opinion, their software is pretty mediocre compared to the alternatives (OS X, Linux, etc...). Their software always requires countless hotfixes and patches to address flaws in the original product. It's a lot more difficult to apply a hotfix to a piece of hardware than it is to their crappy software.
Here's hoping Balmer sticks to his guns and doesn't try anything else with hardware. Microsoft clearly don't "get" the hardware business - at least they realise that.