So why did mighty Microsoft turn so wimpy?

Time was when Microsoft inspired dread in the tech industry. With a few exceptions, most rivals and partners did their best not to get on Bill Gates' bad side.

So why did Microsoft agree to a two-tiered Vista upgrade program that its managers knew was a mistake? The trove of e-mails released in connection with a pending class action lawsuit paint a Microsoft strangely unwilling to stand up to pushy Wintel partner Intel.

Check out these juicy passages highlighted by Todd Bishop at The Seattle Post-Intelligencer:

"We are caving to Intel," wrote Microsoft's Mike Ybarra in a February 2006 e-mail to Jim Allchin, Microsoft's Windows chief at the time. "We are allowing Intel to drive our consumer experience. (Computer makers) support our goals here and they've made graphics investments to drive the (user experience) with consumers. I don't understand why we would cave on this when the potential to drive the full (user experience) is right in front of us."

Or this one from John Kalkman to Scott Di Valerio, who ran Microsoft's relations with PC makers at the time:

"In the end, we lowered the requirement to help Intel make their quarterly earnings so they could continue to sell motherboards with the 915 graphics embedded. This in turn did two things: 1. Decreased focus of OEMs planning and shipping higher end graphics for Vista-ready programs and 2. Reduced the focus by IHV's to ready great WHQL (Windows Hardware Quality Labs) qualified graphics drivers. We can see this today with Intel's inability to ship a compelling full featured 945 graphics driver for Windows Vista."

The love-hate MS-Intel relationship goes back years. But back before getting gobsmacked by Google and the Web 2.0 crowd, Microsoft was famous for throwing its weight around--even with Intel. We got a peek at some of the back-and-forth between those two during the Justice Department's antitrust lawsuit in the late 1990s.

Gates pressured Andy Grove to dump the development of its NSP software. He also held a one-on-one where he told his Intel counterpart that Microsoft had a big problem with Intel funding the development and distribution of free platform-level software. Here's an excerpt from the court's finding of fact:

"In fact, Gates said, Intel could not count on Microsoft to support Intel's next generation of microprocessors as long as Intel was developing platform-level software that competed with Windows. Intel's senior executives knew full well that Intel would have difficultly selling PC microprocessors if Microsoft stopped cooperating in making them compatible with Windows and if Microsoft stated to OEMs that it did not support Intel's chips. Faced with Gates' threat, Intel agreed to stop developing platform-level interfaces that might draw support away from interfaces exposed by Windows."

That was then and this is now. In the post-antitrust case era, Microsoft has new and equally pressing worries. On one hand, it has Neelie Kroes and the European Union to please. On the other, it's desperate for all the allies it can muster. Would Microsoft have risked alienating Intel had Steve Ballmer picked up the phone to Paul Otellini and told him to back off? You can only wonder.

In the meantime, I suspect Intel is likely to get an earful from its OEM customers as more e-mail revelations surface detailing backroom pressure on Microsoft over its "Vista Capable" program.