I interned at Microsoft when they were trying to ramp up from from the skeleton crew. The impression I got was that this was part of it, but also that Microsoft was averse to innovating on IE after the US antitrust case.
Microsoft didn't need to do any "innovating." They just needed to adhere to existing and emerging standards. Also, Microsoft needs to seriously stop using that word "innovation,"because the more they talked about it, the less they actually did. It got to the point that Microsoft fooled themselves into thinking that everything they did was innovation.