"I've always been surprised that Microsoft didn't do a full operating system refactor and provide a compatibility layer for running old binaries"

Just keeping a legacy system in working order is different skillset than writing a new system from scratch.

So you need a new team. Nothing from Windows maintenance transfers.

Maybe would require hiring someone who knows how to design an OS.

It would be a major undertaking, needing protection by CEO (and if it would not succeed CEO would loose a lot of prestige).

I'm not saying MS does not have the existing talent base. I don't _know_.

But I've been inside a house maintaining a monstrous legacy codebase.

I can tell you - it requires surprisingly little deep understanding just to keep an existing system going.