Microsoft (NASDAQ:MSFT) wants to have its software on netbooks, but on its terms and at PC-sized margins. Bad idea. Really bad idea.

Interestingly, it doesn't sound bad at first. Trade magazine InformationWeek reports that Microsoft is taking Windows XP -- the operating system that refuses to die -- and transforming it into a lightweight version of Windows 7 intended for netbooks.

But there's a catch. This new OS, called "Starter," will be light on user interface features common in Windows 7 and restrict users to running only three software applications at a time. It's a like a trial version that users pay for.

How is this good again? It's as if Mr. Softy is daring Asus, Dell (NASDAQ:DELL), and Hewlett-Packard (NYSE:HPQ) to go with Ubuntu's Linux distribution or Good OS' "Cloud" browser-based operating system.

At least Apple (NASDAQ:AAPL) and Red Hat (NYSE:RHT) have the dignity to ignore netbook users. Microsoft would rather insult them, apparently. Talk about dumb PR, and in the wake of that black eye the industry calls Vista, no less.

As much as I've written recently about the risks inherent in cloud computing, there's no doubting that the Web is more functional than ever. Oprah isn't on Twitter just because it's the Next Big Thing. Well, OK, maybe she is. But the more than 100 million who use Gmail aren't simply fooling around; it's used to conduct serious business. That's why so many cried foul when it suffered a massive outage recently.

There's a right way and a wrong way to take advantage of the northward march of netbooks, Microsoft. Starter is the wrong way. It's a non-starter.

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Fool contributor Tim Beyers had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Four out of five dentists recommend the Fool's disclosure policy for fighting portfolio cavities.