After a month of using Google's Chrome OS and CR48 notebook, I'm convinced Microsoft cannot ignore the threat of Google's Internet OS. So they should respond with 'Internet Explorer OS' to counter Google's move on their turf.
Chrome OS with the CR48 is what I consider a 'netbook experience'. I'm sure Redmond is busy building Internet Explorer OS. If not, they could have another 'iPad problem' on their hands. The 'browser-as-an-OS' strategy is a smart one and consumers will flock to it. Again, Microsoft can't ignore this. They could use their own browser-based OS to up sell consumers to a Windows 7 Upgrade & application bundle. It could work.
In closing, I love the Chrome OS experience. It's a joy to use each day, even with the occasional hiccups experienced using the development branch and prototype hardware (CR48). Everyday computing tasks are simple & to the point. Computers should be our friends -- not our enemies.
Google is making incredible progress on an incredible computing platform.