The argument that "FOSS doesn't innovate" is dispensed with quite neatly here: http://blogs.zdnet.com/open-source/?p=1146

The study is especially suspect for looking at SourceForge, a morass of semi-active and personal projects mixed in with the real projects to analyse - Linux, KDE, CiviCRM, etc. Look at those projects and I think you'll find plenty of innovation.

Your last sentence is also particularly ridiculous, not to mention an awful ad hominem without evidence to back it up - as though the difficulties developers face in making their software compatible with standard proprietary software like Microsoft Office hasn't held those free alternatives back! You might even say a lack of manpower and money have held FOSS back. The reasons for the relative lack of success for particular pieces of software so far will be rather complex, I'm afraid, so you'll have to do a little more than dump it all on the shoulders of supposedly uncritical advocates.

Tom regarding my last sentence- yes there are efforts in the FOSS community to make FOSS technologies work better with Microsoft solutions, and yes Microsoft won't hand-out the technical details to allow this- I don't see how or why Microsoft would be obligated to. On the other hand, I have seen FOSS proponents downplay the importance of working with Microsoft on interoperability through cross-licensing, and others who altogether say FOSS developers would have nothing to gain from working with Microsoft. In these latter situations, its FOSS holding back interop, not Microsoft.

The article is correct though that FOSS is better at incremental innovation than groundbreaking, pioneering innovation. I don't see this as a fatal flaw, it tells me that at least some FOSS projects should focus on collaboration with research universities, national labs, etc, to build on top of basic R&D. In a meeting at the MIT Tech Transfer office months ago, I was told that this does occur where MIT researchers dual license their academic work, providing FOSS licensing to the academic and technical community, and other licenses to the proprietary industry.