A rewrite without full backwards compatibility just wouldn’t have taken off. Even today, developers are reluctant to embrace the new Universal Windows Platform that sheds a lot of the legacy Win32 brings with it.
And everybody runs everything in the emulator, because day one that's where their apps are. Developers continue to develop for it because not everyone has upgraded to Win7 yet. And you just end up with 2 OS's competing for users and developers from one company.
