It was a strategy that worked wonderfully -- for a while. Really, it ought to have worked forever.
When Microsoft killed Netscape with IE 4 (3?), they used every trick in the old playbook. In particular, they created a set of proprietary extensions to web standards, then baked them into IE server and web application toolkits.
Soon intranet applications were IE only. Many public web sites were also IE only of course, but in the corporate world penetration was 100%.
Why use one browser at work and another at home?
IE took over, Netscape died.
Then history took a strange turn. Google and Yahoo rose just as Phoenix/Firebird/Firefox was struggling to be born. Apple, implausibly, reappeared with a version of IE that wasn't quite the same as the XP version (Safari came later). Microsoft had serious competitors who were motivated to support an alternative to IE. It became possible to get public work done using Firefox. Security vulnerabilities in IE 5 made it a poor choice on the pubic net. A critical mass of geeks began using Firefox at home, though they still had to use IE at work.
IE 6 came out and corporate apps mostly worked with some tweaks. The browser security issues remained, however. IE 6 was still signficantly inferior to Firefox and it continued to lose market share.
Microsoft felt obligated to introduce Internet Explorer 7 -- a quite fine browser that, for reasons that Microsoft may now deeply regret, had to be significantly different from IE 4, 5 and 6. In particular, it had to be more secure and to fully support Google's web apps.
These differences mean that IE 7, years after its release, is still not accepted on many corporate networks. There are many legacy intranet 'web apps' (IE 5 apps, really) that still don't work with it.
Microsoft has become trapped by its corporate installed base, and by the peculiar extensions they created to destroy Netscape.
That's wretched success.
IE 8 is supposed to be two browsers in one -- a "standards" browser and a legacy browser. Clearly Microsoft learned a lesson from IE 7.
Maybe IE 8 will work, and Microsoft will regain its monopoly power. They're certainly going to try with .NET and Silverlight to bind the browser back to the Microsoft ecosystem. At this critical moment in time, however, a very successful strategy has had an unanticipated cost.