If innovation means creating something totally new based on nothing that was designed by others, then practically no one can claim to be innovating.
Computer products in general belong to what is sometimes called (products of) "Applied Sciences". It is not hardcore sciences where discovery about new characteristics of the physical world is made and more is made known. And even then, it is "mere" *discovery* and not creation per se.
Innovation or creation (to me at least) is about piecing together existing building blocks to create a whole that is greater than the sum itself. In certain cases, it involves building blocks that are small enough or low level enough that it is generally seen as a "new" technology.
MS, Apple, IBM, Sun, HP, Dell ... all the big boys (and girls) (and small boys ... and girls
) all innovate in some manner, be it in higher level productization of existing technology or research of new lower level technology or development of newer ways of business model. They all are undeniably some form of innovation. What they do from the success of it, is quite a separate issue. Just because MS let IE become stagnant after that does not mean we should simply discredit it for IE's success in the browser war.
Last point to note. I used to work in MCS (Microsoft Consulting Services) and from what I see, ironically corporations and business users chose IE partly because it was "stagnant", and later lamented it for the same reason. How so? Corporations deal with hundreds and thousands of users spanning different geographical locations and very often across different platforms (of windows, from Win3.1 (back then) to Win9x, NT, 2k and XP). When they roll out a new business application that uses the IE as backbone, they cannot afford to have compatibility issues day in and out. Between having the latest whistles and bells (like tabs and what not) vs a more or less fixed backbone, most of them chose to have a fixed backbone infrastructure.
In a similar tone, when I met some corporations while trying to share with them MS AD & Exchange as a new directory and mail / app backbone, there was serious concern even though they agreed that there is much much more functionality while the aging Lotus Notes platform had some much quirks. The crux was that the whole tech infrastructure (in business) is built not to try and be the latest greatest but to enable the core business of the corporation to function better and ... in short increase the bottom line. The corps had a choice, and they chose IE.
Having said that, over the years, IE did stagnated. On two fronts: One Security stability and Two Whistles and bells. While most corps realised that security was becoming an issue, fixes and patches were not coming in as quickly as should have been. On this front, its a shame on MS that it should have happen at all. On the other hand, if MS had rolled out automatic patch updates to workstations, there will also be a foul-cry of privacy and what not.
Further, like what some articles pointed out, other system features like firewall etc, was part of a series of Da*n-if-MS-do-it, Da*n-if-MS-do-not-do-it thingie. MS works with its partners on both hardware and software fronts. It tries to juggle a fine balance between giving enough features in its OS to compete and allowing a healthy environment for its software partners to create new products for Windows users. Some linux users keep claiming that MS Windows sucks because it does not come with proper photo editing tool, etc etc ... but look what happened to MS with IE?
Did MS bundle Office with Windows? I dun think so.
On the whistles and bells, MS also laxed a bit. Ok, quite a bit. In all honesty, if you try running IE4.01 and compare the browsing experience with 6.0, I think it is quite a bit of a difference. But could they have done more, yes. But does that wipe out their past innovation? No. Does it imply their new product platform is going to necessarily suck and not be innovative? I don't think so.