The recent interview with Linus Torvalds cemented a number of things I've believed about Linux for a while now. Linux isn't an OS, or even a kernel: it's an embodiment of a design philosophy. One aspect of that philosophy could be described as "ignore the competition."
Maybe that's a harsh way to put it, but Linus has said himself, again and again, he's not interested in what the competition (read: Microsoft) does. He doesn't see himself as trying to beat the Boys In Redmond at their own game. His stated interest is writing code -- improving the Linux kernel in conjunction with the rest of the kernel development team and the third-party contributors who submit patches. Linus's attention, and the attention of everyone else working immediately with him, is perennially on Topic No. One: making Linux better.
That's as it should be. Linux, not marketing or sales, is what Linus does.
Some people might argue that Linus is only shooting himself in the foot by not paying attention to the competition. My question is: Who's competing with whom? It's the individual Linux vendors who see themselves as competitors to anyone, and the essence of the competition is the specific feature sets that go into a given Linux distribution. It's Red Hat and Novell who compete with each other, not Linus competing with anyone else. Those vendors compete not only with Microsoft but with other Unixes (and, of course, each other), even if most of the talk is about how they compete with Microsoft, because that's how you get attention.
You also could argue that the very noncommercial-ness of the kernel development process is a philosophical mistake, and that Linux as a whole would be better served by making it a for-profit (and, by that token, closed-source) venture. By making it nigh-impossible to profit off Linux directly, rather than by selling services or support, Linux development as a whole is held back.
But, again: held back compared with what? Compared with things that have entirely different developmental cycles, design philosophies, and stated goals? Linux is developed the way it is because the developers value transparency and flexibility of purpose, first and foremost. If those aren't the things you want, there are plenty of other places to go. Linus knows this and isn't uncomfortable about it. He's stuck to his guns about this issue since it was first brought up. He knows Linux proves itself on its own terms.
I don't think Linus is "out of touch" for ignoring Microsoft. If anything, he's as in touch as anyone in the Linux space can be. And he'd better be: he's the one who needs most to be in touch.