I'm convinced that Microsoft is an amazing
technology company that's utterly and truly terrible at
product. They have a tremendous amount of impressive R&D and capability that seem to fall flat every time they try to ship it for, well, actual users.
I'll believe Woz when he says MS is more innovative than Apple, but I think Woz makes the classical geek fallacy that more innovation is the end goal. The end goal is innovation that people actually benefit from, and that involves more than paying a lot of people a lot of money to conjure up new amazing technology and then ship them in boring, poorly implemented products.
I believe that at some level MS realizes what it needs to do, but corporately it has trouble getting there. The core problem here is that the company simply doesn't sweat the details, and continually, severely underestimates how critical details are in today's market. They developed a no-frills, cheap-plan device that taps directly into our social network addictions, and then failed to actually ship the "cheap plan" part.
They released a new, innovative smartphone OS where performance was a critical differentiator from the competition (Android 2.x), and then failed to ensure that 3rd party apps had access to the same performance abilities.
And now they've released an innovative new desktop OS that bets the farm on touch interactions being the wave of the future - and their own first-party apps are in many places poorly designed for touch interaction. Major parts of the core OS are also not touch-ready.
The details matter, and MS never, ever gets the details right.