Peter Bright at Ars Technica has a lengthy article on Microsoft's adoption of agile software development methodologies, and it's well worth a read.
Microsoft development teams had long been mired in waterfall methodologies, and product releases were frequently late. The team behind the Visual Studio IDE first began adding support for Agile to their product because customers were requesting it. However, that experience also led the team to realize that Agile methodologies could improve things at Microsoft.
The change wasn't easy, and it required developers to give up their beloved private offices. However, it has led to big improvements. Bright writes, "With the new process in place, the Visual Studio team has been able to build better software and deliver it more frequently. It's now approaching its 70th successful three-week sprint. TFService, now rolled into a broader suite called Visual Studio Online, has a service update every three weeks, putting new capabilities and features into users' hands on a continuous basis."
Other Microsoft development teams also now use Agile practices.