Anyone who thinks Microsoft isn't capable of responding to a serious challenge doesn't know Microsoft. It's the familiar puzzle, put together the same way: Let others blaze the trail, then wait for an opening and leverage resources.
Windows Azure, depending not upon whom you ask but instead upon when you ask the question, either is or is not an operating system. It is not a kernel designed to operate on a single processor and provide access to resources on the local machine, so in that regard, it is not Windows.
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