Microsoft is getting its first taste of reality for a variety of different reasons. I don't think there's any evidence to suggest they are in for a slow bell curve style decline. Their business model will change of course but probably won't decline much or at all. Eventually the economy will recover and enterprise PC sales will pickup. On the consumer side it's probably inevitable that Windows revenue will continue to shrink as consumers move more of their computing online and to mobile devices.
The one area they can build on is the Xbox platform as a general purpose set top platform that might serve some of the same functions as a traditional desktop PC. For example: It could be a file server, print server, home automation controller, media store, shopping front end, etc, etc. No other company is in a good position to control the living room. Apple isn't interested, Sony is patiently waiting to die, and Nintendo is firmly a gaming company completely incapable of making a general purpose platform. Most importantly the Xbox is one of the only new Microsoft products in the last decade that has really caught on with consumers. Eventually they can probably build on the success of the Xbox platform into mobile devices.
The one area they can build on is the Xbox platform as a general purpose set top platform that might serve some of the same functions as a traditional desktop PC. For example: It could be a file server, print server, home automation controller, media store, shopping front end, etc, etc. No other company is in a good position to control the living room. Apple isn't interested, Sony is patiently waiting to die, and Nintendo is firmly a gaming company completely incapable of making a general purpose platform. Most importantly the Xbox is one of the only new Microsoft products in the last decade that has really caught on with consumers. Eventually they can probably build on the success of the Xbox platform into mobile devices.