Even before Vista is release, Microsoft is already planning and developing the next generation ahead of Vista, their development never stops and is continuous.
From what I know Microsoft has 1000 engineers just in charge of their OS, they work on individual portions and there is a master engineer to compile all the sources to the program and from there check the mistakes sending back to the engineers to correct, it is a massive and continuous process, certainly not produced in batches, but through years and years of upgrading and correcting. The evolution of Windows 95 to the present Vista showed their products through the years of improvements and innovations.