Microsoft is certainly a convenient target, but I think there's more to the Tablet PC's poor sales than the price of the operating system. Price is certainly an issue overall; the cheapest Tablet PCs retail for around $1700 and are stuck with a Transmeta Crusoe processor at 1GHz, 256MB of RAM, and no Wi-Fi. For roughly the same price, potential Tablet buyers can hook up with 12" Centrino notebooks from Dell or even PowerBooks from Apple. Of course, those notebooks don't support pen-based input like a Tablet PC, which raises the question of whether people need pen-based input at all.
I can certainly think of a lot of applications that suit pen-based computing, but I can't imagine that many consumers are willing to sacrifice performance or live with less powerful hardware just to get their hands on a stylus. Microsoft can only do so much to drop the price of Tablet PCs, which may be more victims of the widespread availability of powerful and inexpensive laptops than anything else.