Since the BabyBills would be fighting for market share, each would have a strong incentive to improve Windows--to offer it more cheaply, to make it more crash resistant, and so on.
The gamut of possible outcomes runs from a mild go-forth-and-sin-no-more to the truly Draconian stuff: forcing Microsoft to share its Windows source code with its competitors or carving it up into separate, independent companies, the so-called BabyBills (see chart).