I'd say it was Intel more than Microsoft; the Classmate PC was a shitty clone that they marketed like crazy to target the OLPC, which ran an AMD chipset. Running full-blown Windows, no screen visible in sunlight, no easy mesh networking, etc.

My brother got one of them as part of a subsidized program, and man, it sucked. Slow, barely any free disk space, it was a waste of money even at 50€.

I seem to recall that MS managed to "convince" whoever was in charge to offer a OLPC variant with Windows on it, effectively watering down the core concept.

Yep, I was part of the open-source dev community back in the day. The push by Microsoft and subsequent deal with Negroponte to have the XO laptops also run Windows really disappointed a lot of the open source developers. Back then it felt a little like the last nail in the coffin, for me at least.