I think the most major issue is managerial - the Xbox division from what I've heard has managed to conquer many of the serious management issues that plague the rest of MS (particularly the "main" teams, Windows and Office). MS is infamous for having a thick, thick layer of middle management that has proven to be detrimental to innovation and productivity.
I think MS's long-term success hinges on being able to determine the managerial how and why of the successful, innovative teams at MS (Bing, Xbox, etc) and transferring that to the rest of the company.
Downmodded why? I. M. Wright's “Hard Code” (published by Microsoft no less) pretty much makes this claim. Apparently they used to laugh at GM's layers of management, and now they have a similar number.
I work in Seattle, and know a number of Microsofties, and this is a pretty reliable consensus too even for people who are still there. The org tree is very, very deep and this causes a lot of problems - especially as a company ages and people go from enthusiastic risk takers to CYA corporate types.
I think MS's long-term success hinges on being able to determine the managerial how and why of the successful, innovative teams at MS (Bing, Xbox, etc) and transferring that to the rest of the company.