Contrary to popular belief, Microsoft's motivation behind Internet Explorer was not profit. After all, how can you profit off a free browser? Microsoft's primary driver behind IE was more likely control. Back in 1995, the web was becoming quite a force. "e-commerce" had been around for almost a year, and Microsoft could clearly see that Netscape was doing quite well. No tech company wants another company driving control of the medium and the standards developed around it. Internet Explorer was born (well, licensed, initially) to be Microsoft's weapon in the soon-to-come browser wars.
In 2002, the browser wars effectively ended. Microsoft won out, with 96.6% of users browsing the web with Internet Explorer. Microsoft no longer needed to compete. At over 96%, standards and web development in general were now driven by and targeted to IE.
As a web developer, having to cater for IE is frustrating -- It's fraught with weird quirks and bugs. But it's something you have to do. Even with the (relatively) recent rising of Firefox and Safari, IE still accounts for over 84% of browser usage.
But nothing's going to change any time soon. Think about how many websites out there are still "Internet Explorer only". Think about how many applications only work in IE (Outlook Web Access is the first to come to mind). Until IE's market share significantly takes a beating (say, down to the 50% mark), Microsoft has no incentive to innovate. IE8 might eventually come around -- but it'll likely be as much of an anticlimax as IE7. And even then, we'll still be stuck with catering for IE6 and IE7's quirks.