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Does it even want, or need, to? That's probably a more interesting question, though this is still a fairly sophisticated argument he's making, not the "Microsoft sucks!" article that you might guess from the headline.
Since MSFT entered the Web search market, it is in their interest to maintain a solid presence in the browser market. The only way they can achieve this (besides having a large OS market) is by making a superior browser.

As long as they adopt open standards I have no problem with it.

Personally, I will never use IE browser even if it is the fastest, most compliant browser around. IE have scarred me too much during my web design days to ever fully trust them. I will stick with Chrome & Firefox.

You can [sadly] substitute IE9 for quite a few different products from MS where the demo come out so early that by the time of release, competition is well ahead.

ZuneHD was initially announced cheaper than the comparable iPod touch - by the time it shipped (9 months later), apple had dropped the price on its product. HP Slate announced before iPad but available after.

Microsoft really doesn't understand how to market themselves.

They do understand how to market themselves. They try to appear more competitive than they really are.
Yes, Microsoft can definitely build a better browser. They just need to put their hearts to it. And cut off all support for IE. They envisioned a Chrome-OS like system before Google did, and I think they even have a team to work on it (not sure though).
I agree that they have envisioned a Chrome-OS like system before Google (right after Netscape mentioned that they will turn Windows into set of poorly debugged device drivers). But this vision was not "Wow! Let's do that!" - instead it was more like "Oh my God! If this ever going to happen it will kill our business. Let's kill Netscape then.".
Google was already working on Chrome when gazelle was announced. They didn't built it in a day.
Working on Chrome or working on Chrome OS?
Microsoft doesn't want to follow standards, their browsers are made to access stuff built by software they license and the only reason they are willing to adhere to some standards now is because they have fallen behind. So in essence their shitty browsers are a kind of DRM.
Their browsers have to be as broken as to make companies dismiss web applicatios as immature and unfit for the enterprise, but not broken enough as to make companies ditch IE in favor of other browsers.

It also has to be broken enough so that stuff built with their development tools work better with IE and developers have to choose between supporting IE and supporting other browsers.

To be fair, it's a very difficult task to maintain IE in the just enough broken zone.

And why not? IE6 was released in August 2001! Its competition was something like Netscape 4.8. Mozilla was barely alpha, and not really usable yet. In this light, IE6 was a good browser, better than any competition back then. Of course. IE6 was mostly irrelevant few years later, but that wasn't because it was crappy browser, but because it was simply obsolete (but without a replacement from Microsoft).
Microsoft decided to kill IE, with 6 being the final version, in order to integrate the browser into Windows. Five years and a few major court cases later and they changed their tune and began work on IE7.
Wow, this is very interesting if true. Is there public information backing up the assertion that Microsoft wanted to kill IE as we know it and integrate it into Windows?
I heard it from Molly Holzschlag during a presentation at Microsoft Mix last week. There were members of the IE team all over the place and I think someone would have called her on it if it wasn't true. Or maybe Microsoft leaked the fake story as a cover for an outdated browser :)
I think having a more iterative release cycle for Internet Explorer would put Microsoft in a better position. Having small releases adding new functionality would be much better than having to wait 2+ years between browsers. This tactic seems to work in the Windows & Office world, but not so much in the quickly changing browser market.
Microsoft can build better browser. But it will be zero-sum for them.
The elephant in the room here, and one that is completely ignored by this article (AFAICT) is corporate web apps.

A constantly moving target, which auto-updates silently, is anathema to the average half-baked corporate web app. They're half-baked for a reason: they have a limited budget, a limited customer set whom they mostly trust, and need to be maintained in parallel with lots of other apps by understaffed development teams working in companies whose main business is not software.

Perhaps MS needs two browsers, or some other solution. But I can't see them moving to a fast-iterating model without a radical shift in where they make their money - i.e. their business model.

It also helps them that you still can't manage Firefox settings remotely for your desktop estate, and you can't change policy across all your users instantly. Both of these give IE massive traction.
I think that's the "compatible mode" (i.e. an old IE6 engine) ?
it doesn't work all that great on my corp intranet.
To be perfectly honest, I don't want IE to iterate very quickly, because then there would be 30 quirky, borked versions of IE to code around rather than 3. Granted, the last few may actually be standards compliant, but dealing with the 25 intermediate stages that aren't would be the seventh circle of development hell. Even though conditional stylesheets means you wouldn't have to rely on CSS selector hacks, that would make QA an order of magnitude more onerous than it already is.

I guess it's a chicken-and-egg problem, they aren't compliant because they don't develop iteratively, and they can't iterate often until they're more compliant unless they want to saddle everyone with a dozen inconsistently non-compliant browser versions. Even if they tried, all but the very largest web properties probably wouldn't QA for all versions of the browser. The drop in IE support from websites would result in a worse experience for their users.

I hope not.

For them to kill Trident and move to WebKit would be a git from heaven. of course it will never happen, though. Having a top-notch browser doesn't fit their corporate plans at all. The web platform is a threat to Win32 as it always has been, more now than ever, and it would practically be disregarding shareholder interests to promote a standards based web app platform.