Without trying to defend MS, it can only dominate markets that customers allow it to dominate. Nobody is forced to purchase MS products. They do so because, for whatever reason, they perceive that MS serves their needs. One of those needs is file compatibility with others, which by its nature, allows MS sales to feed on themselves. The more people buy MS products, the more people need to buy MS products to communicate with all the others who went before.
But, of course, the only reason file compatibility is an issue - the only reason MS can behave as it does - is that it is an effective monopoly. Last time I checked monopolies are anti-competitive, and there are LAWS in the US to curb them. So I agree, there is a role for gov't to step in. Good luck waiting for that though. Break the monopoly for a few years by being hyper-vigilant about code development and marketing and you might actually break the monopoly for good.
Furthermore, if enough people forced gov't to accept standardized document types (e.g. ODT or even PDFs!), the monopoly would weaken.
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