Keeping an open mind
I've been quite impressed by XP Embedded and hopefully Windows 7 Embedded will be as good.
Not the sort of thing you want for minimal, constrained hardware but I've found it very suitable when one wants a smaller footprint than a desktop OS to support Windows applications because Windows Apps are what one specialises in.
It's the choice of fit the software to the hardware (Linux ) or fit the hardware to the software (XPE), and which is best depends on what one is doing and which business plan suits best. For those who are Windows-centric, a Windows OS makes sense.
I have an application, originally developed for the desktop in VB, which works when wrapped as an embedded box. The time and cost of a rewrite and testing would be far more than simply installing XP Embedded on off-the-shelf hardware. Embedded wins the business case there and maximises my profit, pays employees more, and they can get on with the next project. Maybe you don't agree with the strategy or choices made in the past; well tough, that's what it is, and it is working well. You are free to do your own thing, decide your own course.
I agree, it would be nice if desktop Windows offered the same options to customise and shrink as Embedded does but the former is a general purpose platform which has to support everything a non-technical end-user arbitrarily plugs in. The 'download this, install cygwin / MinGW, compile the source, re-build the kernel, fix the fails' is not fit for purpose in most end-user territory.
Ubuntu and other modern Linux distros seem to have seen the light and take more of a 'provide everything' approach, but I do have to laugh when told "Linux is leaner than Windows" and complaining of bloat when looking at a multi-gigabyte Linux install which won't even fit on the 100MB disk I have which runs full Windows 98SE with room to spare.
To those, seemingly fanboys of anti-Microsoft slant, who just shout "Fail!", how exactly does Embedded fail ? It's like labelling a chip shop "Fail!" because they couldn't fill your car up with petrol - If you're not in the market for what Embedded offers then of course it won't deliver. Embedded may not be the solution you would choose, but that doesn't make for "Fail!", and for many others it is exactly what they want.