Microsoft didn't quite say that....
Sorry to be so picky, but In a vain attempt to inject a few historic facts regarding one small aspect of your article...
You say "Microsoft declared grandly that no more could be done on browser development and that IE would in future be subsumed into Windows"
. In fact, what happened was that an IE program manager/test manager, speaking in May 2003 during an online chat session (Microsoft hosts a huge number of such sessions to communicate with various communities) made some rather opaque remarks that were picked up in the press. These were comments by a single employee during an on-line chat, not a formal announcement, grand or otherwise, by Microsoft.
The individual, Brian Countryman, was asked when the next version of IE would arrive (at the time, the current version was IE6 with SP1). Mr Countryman replied "As part of the OS, IE will continue to evolve, but there will be no future standalone installations. IE6 SP1 is the final standalone installation." A couple of questions later, he was asked if the withdrawal of 'standalone' versions of IE was due to antitrust. Mr Countryman replied "Although this is off topic, I will answer briefly: Legacy OSes have reached their zenith with the addition of IE 6 SP1. Further improvements to IE will require enhancements to the underlying OS."
From these two comments grew quite a big myth. AFAIK, No one, to this day, has been able to explain Brian Countryman's comments satisfactorily. Why did he appear to believe it was necessary to introduce improvements into the OS in order to improve the browser? Did he really mean to imply that Windows is a 'legacy OS'? What on earth does it mean to claim that 'legacy OSes' (in the plural) have 'reached their zenith with the addition of IE 6 SP1'? The comments don't appear to make any sense.
The important point here is that this was not a formal announcement by Microsoft. It was a couple of comments made by a program manager during a Q&A on-line chat session. They included an explicit assertion that "IE will continue to evolve", contrary to your claim that Microsoft said that "no more could be done on browser development". There was no claim that "IE would in future be subsumed into Windows". The comments also claim that it was 'legacy OSes' that had reached their zenith, rather than browsers.
The myth surrounding these comments has become very widespread over the years, and is a good example of how a couple of opaque, unguarded and, frankly, inexplicable comments by a single non-senior Microsoft employee without obvious sanction from the company can take on a life of their own at the hands of Microsoft's many detractors. Microsoft employs more than 90,000 people, and not every comment that every individual employee makes should be taken as 'gospel'.