Everyone interested in technology should care about MS. They are big and not going anywhere anytime soon. But have they lost their edge? It sure seems like it. Sure, they still dominate the OS market, but the competition has doubled their % of the share and look to be moving up. Win7 should be huge for them (I personally found it to be their best OS yet, but still not good enough for me to pay for considering the fact that what makes it good is what they copied from free competitors such as Ubuntu), but the fact that a lot of business don't find it worth the hassle to upgrade it's not too likely to reverse the current trends. A lot of their other software is losing ground even faster (Office, IE) to free competitors and there really is almost nothing they can do to stop that. The Xbox division isn't nearly as dismal as the analyst seems to think, though.
Overall, MS's issue isn't that they aren't innovating and it isn't that they don't remain dominant, it's the fact that people are actively seeking alternatives to their products. Often this is due to the fact that people just plain do not like their unsavory business tactics. While it's a small crack in their armor right now, it just keeps growing. The more people that try Linux, for example, the more people are willing to work on Linux which in turn makes more people willing to try it. MS will need to do something serious to retain its absolute dominance, and I don't think they have it in them to do that with their existing product lines.