With Microsoft's antitrust problems in the hands of a federal appeals court, the mood in Redmond this year stands in sharp contrast to the sullen atmosphere that enveloped Microsoft's campus just 12 months ago. The company's stock prices are up, customers are beginning to believe that Microsoft .NET isn't a vaporware announcement designed solely to keep competitors off track, and this year promises a slew of important product releases that will further buoy the company and its public image.

Microsoft Office XP, which shipped this summer, was first out of the gate. Microsoft is saving the big guns for October, when the company plans to unleash its first must-have OS upgrade since Windows 95. The feeling is building that the Windows XP release, which is scheduled for October 25, will give the computer industry a much-needed boost.

Indeed, consumer interest in a Microsoft product hasn't been this pronounced since August 1995, when eager customers waiting for the release of Win95 partied the night away at consumer electronics centers and computer superstores. People are just plain excited about Windows XP. Hundreds of enthusiast Web sites and discussion forums are counting down the days until the launch and poring over the small changes in each new Windows XP build. Hundreds of thousands of users ponied up $20 to preview Windows XP when Microsoft reached the Release Candidate 1 (RC1) milestone.

For retailers, Windows XP couldn't come at a better time. The industry is swooning, with year-over-year PC sales set to drop for the first time. The one hope in this year's otherwise dismal outlook is Windows XP, which PC makers expect to rejuvenate new PC sales as consumers look to next-generation hardware to run the new OS. Pentium 4 system sales—reportedly less than half of what Intel had projected—will likely rise dramatically after Windows XP becomes available. Also due for a boost are the hundreds of third-party PC-hardware add-ons (e.g., USB and FireWire drives, video cards, network cards, scanners, digital cameras). And retailers such as Best Buy and CompUSA are already working to bundle promotions for Windows XP—related hardware packages.

The one sticking point is Windows Product Activation (WPA), which prevents users from installing a copy of Windows XP on more than one PC. Microsoft intends to use WPA to halt casual piracy of the OS. The same enthusiast Web sites and forums that are popularizing Windows XP are also disseminating plenty of inaccurate information about the technology. As a result of all the rumors floating around, Microsoft could face a public-relations nightmare if it doesn't effectively communicate how WPA works. And of course, several third-party groups—primarily backed by Microsoft competitors—are urging the government to investigate Windows XP before Microsoft can ship the product.