Watching that Charlie Rose interview, I’m not sure Ballmer is right about his post mortem analysis. Windows CE and the early Smartphone platform suffered because it lacked many features that are essential to a successful ecosystem — like a real App Store and a protected sandbox model for applications to run in.
This had to be the most frustrating thing about Microsoft’s behavior back then — while they created a successful app store model ecosystem on the Xbox 360 with the Xbox Live Arcade, they failed to realize that the same model could work on mobile. Remember that XLA was launched (as an app store interface) in 2005, two years before the iPhone, and three years before the App Store. If MS had bought Handango (the third party download site for Windows Mobile) and created a real ecosystem things would have a been very different.