What Mini-Microsoft doesn't seem to get is that Microsoft is in an industry driven by growth and innovation.  Yes, we have our share of Black Hole projects that sop up resources and never ship.  But in the outside world there are whole companies like that:  they're called startups and most of them fail.  The brilliance of Silicon Valley is that people can take a risk, get venture funding, fail completely and try again.  Yes, the VCs are going to look at your track record, but unlike some business cultures, innovation is encouraged even at the risk of failure.

What I believe Bill Gates has done in Microsoft is create an internal version of this strategy.  Small groups get together around an idea.  They have to sell it to their immediate bosses (angel investors) to get some resources and time to study the problem.  Some projects produce enough results that they go up the chain to management (venture capitalists) for project reviews.  If they do well they get more resources (more capital), and if they don't the project is dissolved.  Bill and Steve have the same problem any venture firm does:  when do you cut your losses?  If you've already put $100 million into a project, it's very tempting to put $10 million more in and see if something can be salvaged.

Yes, it seems wasteful, but its absolutely no different than the Startup process in Silicon Valley.  The reason Microsoft does it, and the Valley does it is simple:  it doesn't take very many successes to pay for all the failures.