What's to stop Microsoft from incorporating some aspects from Linux into its OS?

I think that it's not so much the peripheral aspects of the OS that matter, but the core ("kernel"); and so the issue for MS would be ripping out the very guts of Windows to replace it with the Linux kernel. To be useful, this port would have to maintain both the proprietary Windows interface (API) as well as the Linux API, and at the interface layer resolve some underlying architectural differences. It would involve some serious technical challenges, but the real bottom line is simply what would motivate Microsoft to do something like that. Why would it cut its own throat by encouraging competition to the Windows franchise? If people aren't forced to make a major choice between incompatible OSes, they might not choose Windows-brand Linux over other Linuxes if all else is equal.

Bit o'trivia: Windows NT began as a port of an earlier UNIX kernel called "Mach", with its API replaced with an extended version of the old 16-bit Windows API. To this day, descendents of NT have the ability to run simple UNIX programs (non-GUI, command line applications) through inclusion of a minimal UNIX API, called "POSIX" after a US Government standard that was supposed to enshrine UNIX as the government standard. It was a blatant anti-Microsoft move driven by its competitors lobbying the government. It failed because Microsoft adroitly built-in a POSIX interface, but POSIX compliance probably still shows up in the occasional government procurement spec.

It's true that Linux is a serious challenge in the server market. But again, it's more than the OS kernel that matters. Windows servers come with a vast array of integrated software, including Web and mail servers, and a rich Web application environment through integration with the .Net programming framework. Windows servers are useful right out of the box, but that's not true of Linux--you always have to spend serious time rolling your own server, assembling bits and pieces of other open source software. The server market seems to have already sorted itself out into two kinds of servers, both of which are present in most large Web server farms: Windows servers for complicated back-end applications such as databases and BBS software; and simple Linux servers to do the heavy lifting of simply sending out files over the Net with no backend processing.

I don't think it's necessary for one or the other OS to win all the marbles. We're doing OK with two different OSes each suitable for different applications. More diversity, not less.

I really don't see anyone comeing close to beating Microsoft's ability to hire the best and brightest talent away from all the competition; and, maybe that is the ultimate market that a supersized Microsoft can corner and use to its competative advantage: The labor market could be played to put a stranglehold on any and all competition.

Ah, if only twere so! Unfortunately, with globalization, there's a glut of labor, and the new benchmark for affordability is an (Asian) Indian standard of living. Not even Microsoft can save the hundreds of thousands of American engineers who've been thrown out on the street over the last few years. And you can be sure that Microsoft is outsourcing along with everybody else. They have facilities in India and China and everywhere else in the world they can find cheap labor to compete with American labor. There's just way too much good engineering talent in the world begging for employment. It's a wonderful time to be a capitalist!