> Microsoft was forced to respond by making a not-quite-as-bad OS in Windows XP

Prior to XP, MS had two lines of Windows: the Windows 9x kernels and the Windows NT kernels. Windows XP was meant to be the merger of the two lines, adapting Windows NT to have compatibility with Windows 95 and Windows 98 features. Unfortunately, Windows XP development went overlong, so MS wedged in Windows ME to give a stop-gap release until XP could actually be released.