One of Microsoft's problems is that they have something called AutoRun, and they have something called AutoPlay. If I remember correctly, the behavior mentioned in the beginning of this article is actually AutoPlay (the window showing the type of media and asking what you want to do), whereas AutoRun is the method used by flash drives and optical discs to automatically run an executable upon insertion. Microsoft has never made dealing with either of these an easy task. Often times, even when you disable AutoPlay for a specific types of media, Windows will pop that window up again the next time you insert a disc/drive.
More importantly, what's so difficult about going into Explorer or My Computer, selecting the drive, and clicking on setup.exe? Is that really such a complicated task that people can't do it? It's so difficult that Microsoft felt the need to automate that three-step process? If you can't follow those three simple steps, then you probably won't be able to use the software once it's installed.
If they insist on keeping AutoRun around, could they at least prevent it from locking up the Explorer process while it waits for the disc to spin up and AutoRun to execute? Inserting a CD should not cause my desktop, Start menu, or any other Explorer windows to stop responding.