History repeats itself, or so I'm told. That's why I'm not ready to sign Microsoft's (NASDAQ:MSFT) death certificate quite yet.

By all accounts, Windows Vista was a massive failure. InfoWorld even named it the second-worst technology flop of all time, ahead of luminaries like the paperless office and digital rights management. "When the dust finally cleared, the new OS seemed like little more than a bloated rehash of Windows XP, touched up with fresh coat of 3-D-rendered paint," says Infoworld's written slap across Redmond's face.

Here's the good news for Mr. Softy and his faithful investors: the company has been here before. I have a cute, private name for Windows Vista: Windows ME 2.

The similarities between Millennium Edition and Vista are striking:

Similarity

ME

Vista

Previous Version

Windows 98, a huge success

Windows XP, another massive hit

Chief Complaint

Buggy hardware drivers

Buggy hardware drivers

Other Major Issues

Frequent crashes, unwanted new features

Elephantine system requirements, unwanted new features

And here's where the picture turns rosy: After ME, Microsoft learned from its mistakes, fixed a ton of problems with its latest non-starter product, and then unleashed Windows XP on a skeptical world. It was the first truly stable and reliable Windows version since, well, ever, and so good that many of us still use it today, more than seven years after its original release.

I think that Steve Ballmer can pull another rabbit like that out of his magic hat. Windows 7 is due no later than 2010, and it could see the light of day in the second half of this year. Word on the street is that much of the Vista bloat and clutter has been ironed out, and that this release could make everyone forget about the last mistake.

The rise of a new machine
Microsoft can't get this baby out the door fast enough. Seven years ago, Windows had no credible competition in the consumer and business-user markets. The ME flop only delayed a few million upgrade cycles and sales until XP came out and proved what it could do.

This time, Apple (NASDAQ:AAPL) has taken a serious bite out of Microsoft's market share, while running on the same Intel (NASDAQ:INTC) chips. Desktop Linux is getting better day by day, so Ubuntu and Red Hat (NYSE:RHT) must be taken seriously.

And far out in left field, Web 2.0 technologies and cloud computing are making Google (NASDAQ:GOOG) into a new threat, with Amazon.com (NASDAQ:AMZN) looking like an improbable dark horse. Who needs a premium operating system if every program you use runs on a Web server somewhere?

So you can bet your last dollar that Redmond is abuzz with serious efforts to overcome Vista's many failings. When Windows 7 hits store shelves, it has the opportunity to erase two years of bad press and disappointing sales -- and to start another huge success cycle that could beat back the burgeoning competition and cement Mr. Softy's place anew atop the heap of software giants.

The aftermath
Assuming that Microsoft can turn on a dime once again, like it did after ME, the opportunities are much larger in 2009. Where Win 98's red-headed stepchild had to settle for desktop systems and notebooks, a slimmed-down Windows 7 could become the standard platform for those products, plus netbooks, smartphones, and all manner of embedded systems. "7" will not only replace Windows XP, but a trimmer version could also replace CE and Mobile. If it's as good as the early reviews say, it could and should expand Microsoft's market in each of those segments.

So Vista walks off into the sunset to join ME, Apple Newton, and IBM's (NYSE:IBM) OS/2 Warp -- lost, forgotten, and not really missed. It's up to the sequel to restore Microsoft to glory and growth. I think it will happen.

Further forward-looking Foolishness:

Microsoft and Intel are Motley Fool Inside Value picks. Google is a Rule Breakers recommendation. Amazon.com and Apple are Stock Advisor picks. The Fool owns shares and covered calls of Intel. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. He is a certified Unix admin, so this bright outlook for Windows sort of hurts a little. But we gotta keep it real, dog. You can check out Anders' holdings or a concise bio if you like. The Motley Fool is investors writing for investors.