I believe that paulgraham meant that Microsoft is a DEAD-END.
My opinion as to what killed them: suicide by REGISTRY. While any operating system needs a file system, the usual critical lack is a DATABASE system. But instead of a (relatively) simple, open relational database, MS chose some key of hierarchical network database they called the Registry. This made Windows suitably arcane, but rediculously hard to manage and maintain. Coupled with the security holes, and the advent of a capable unix-like OS, makes Windows obsolete, if still operable.