Have you taken a look at their developer toolkit?
ASP.NET is a really strong player in the web, and ATLAS has given them serious AJAX support. It is still pretty buggy now, but has the promise of the same easy drag and drop development that revolutionized Windows developement.
Or XNA? The next generation of game deveopers are already cutting their teeth on C# and XBox.
Or Robotics Studio? They are positioning themselves to corner the OS market for Robotics the same way they did for PCs back in the 80s.
As long as Microsoft has the hearts and minds of millions of developers, they aren't dead.