Hmm. NVidia wasn't very important until the Riva 128... heck not really until the TNT, and that was what... DX5 era? DX3 at the least. I don't think they had much to do with DirectX in the beginning. NVidia cards were very OpenGL centric in the beginning, and remained so until only recently -- largely due to their fair number of ex-SGI employees, which have been there for eons.
Outside of that, I agree with Squilliam on almost every point. Microsoft is very bright, in the strategic sense, and they realized that the livingroom was the biggest threat to their business, and the only place where there could, one-day, be full-fledged computers that didn't run MS operating systems (unless they entered the market). With the advent of online office suites, like Sun's OpenOffice, or Google's office suite, the danger has finally materialized as a threat to Microsoft's main source of income.
They were smart to get in early, and they are most certainly here to stay.
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