Backward compatibility with older, so-called "legacy" applications, should also be supported via virtualization. "Backward compatibility is a losing proposition for Microsoft; while it keeps people locked into Windows, it also often keeps them from upgrading," said the analysts. "[But] using built-in virtualization, compatibility modules could be layered atop Win32, or not, as needed."

Silver and MacDonald also called on Microsoft to make it easier to move to newer versions of Windows, re-think how the company licenses Windows and come up with a truly modular operating system that can grow or shrink as needed.

Microsoft has taken some new steps with Windows, although they don't necessarily match what the Gartner analysts recommended. For instance, the company recently granted Windows XP Home a reprieve from its June 30 OEM cut-off, saying it would let computer makers install the older, smaller operating system on ultra-cheap laptops through the middle of 2010.

It will also add a hypervisor to Windows -- albeit the server version -- in August, and there are signs that it will launch Windows 7, the follow-on to Vista, late next year rather than early 2010.