Ballmer: Windows Vista is a work in progress

While Microsoft recently extended the date when the XP software will be available for low-cost PCs, it doesn't plan to listen to some other complaints, including that Vista is too big. "Vista is bigger than XP, and it's gonna stay bigger than XP," Ballmer said. "We have to make sure it doesn't get bigger still."

During the lively session, peppered with flag waving by a rowdy group of Canadians, hoots, and applause, Ballmer spoke about a few other key areas that the company will focused on in the near future. "It's virtualization time for Microsoft," he said. "We're gonna make sure we democratize virtualization." Probably less than 5 percent of servers in the world are virtualized today, he said. "It's too darn expensive and too hard to manage. We intend to take major strides around addressing both of those."

He also said to expect more work from Microsoft in the search market. "There's an opportunity to knock the socks off in terms of innovation," he said.

Once Microsoft introduces some blog services later this year, Ballmer intends to ask its MVPs (Most Valuable Professionals) to switch their default searches to Live Search for one week. After that week, he'll ask for their feedback about what they liked and what they didn't, as part of a broad effort to improve Microsoft's third-place standing in the search market.

Another key area for the future of Microsoft is services. Overall, the use of hosted services worldwide is small, but Ballmer expects that in two to three years there will be an inflection point after which millions of people will use hosted services, he said.