Microsoft has done a lot of innovations. Stuff that comes to mind:
DHCP -- everyone uses this, and before this protocol, its precursor was pretty bad to say the least.
Active Directory -- Out in 2000, and is an integral part of almost any organization's infrastructure.
Exchange -- No product can even come close to what this does, except perhaps Lotus Notes.
Hierarchical storage. This isn't used much these days, but since Windows 2000, one can make an array of tapes look like a hard disk volume. It was a very cool feature back when a hard disk had 4-5 GB, and a $40 tape had 40-80 GB of space depending on compression.
SMB/CIFS -- This has totally kicked the smack out of the other network file sharing protocol out there, NFS. Mainly because NFS was designed to share files between machines, as opposed to CIFS and user-level authentication. Of course, NFS v4 has user authentication, but CIFS rules the roost these days.
Office -- one of the biggest things that Word 2007 that helped me through a semester of paper writing was the fact that it could store a database of sources, and be able to put them in proper MLA format, with the proper citations linked, and generating a proper Works Cited page.
As for the retail stores, Microsoft needs to sell stuff at the stores, and find something to get people in.
I'd seriously recommend they do a Zune line revamp, because there has not been much press about the Zune since December 31 of last year when the 30GB Zune went catatonic for 24 hours. MS needs to get people onboard to make stuff that a Zune can drop onto, similar to how everything has an iPod dock these days, including car dashboards. Perhaps merge PlaysForSure (now Vista Compatible) line with the Zune, so one's Napster subscription can play on the player, and one's Zune Marketplace tracks can play on a Windows Mobile smartphone.
MS needs to look at devices, and try to get makers to get Windows Mobile everywhere, even the free phones that people buy with a 1-2 year plan. This way, WM appmakers have a wider platform to write (and sell apps) on, which will generate a critical mass. Compared to the iPhone, designing Windows Mobile apps is so much easier. You write code in VS .NET, make an executable, copy it to the phone, run it. Or you can make a cab file, or an installer that installs on the PC and syncs with the phone. Its a pleasure to work with. Apple can have the high end smartphone market, Microsoft needs to get Windows out there in volume.