Microsoft has pulled a u-turn on allowing consumers to virtualise its new Vista operating system, saying it will stick with its current policy.

Using desktop virtualisation software such as VMware's VMplayer, Microsoft's Virtual PC, or Parallels' Desktop for the Mac, users can create virtual copies of a PC, including the hardware, operating system and applications, that can run on top of another operating system or be transported to another machine. In the case of Parallels, that can even mean Windows XP or Vista-based virtual machines or VMs that run on top of Macs using Intel processors.

Microsoft planned to let consumers create VMs using retail versions of Vista Home Basic and Vista Home Premium. They cost £169 and £199, respectively.

Microsoft's contracts, known as End User Licensing Agreements (EULAs), only allow full retail versions of Vista Business or Vista Ultimate to be run as virtual guests of a host PC. This simple change in Microsoft's licence – there was no technical limitation preventing knowledgeable users from virtualising retail versions of Home Basic or Home Premium – would have saved customers at least £30 and up to £100.

Besides boosting flagging perceptions of Microsoft's overall virtualisation strategy, the move would have made Vista virtualisation much more attractive to a key and growing segment: Intel Mac owners who want to run Windows software.

"This is aimed at virtualisation enthusiasts and that includes consumers wanting to run Windows on Mac hardware, absolutely," said Scott Woodgate, a director in the Windows Vista team before Redmond's reversal.

According to Chris Swenson, software analyst for NPD Group, almost one in ten PCs sold today at is a Mac.

Open source vendor, Parallels has sold half a million copies of its software that lets Intel Mac owners boot up its operating system, OS X but also run Windows XP or Vista applications.

"I would anticipate after this announcement, the number of people running Vista in virtual machines will explode," said Ben Rudolph, director of communications for Parallels, before Microsoft's change of heart.

Afterwards Rudolph said: "we're obviously disappointed by Microsoft's decision... but this is ultimately Microsoft's decision. It's their call on how they licence their own software."

"What we will do – which is easy to do because we are just down the road from [Microsoft headquarters in] Redmond – is continue talking to them, keep advocating the enablement of virtualisation, keep the issue alive," he said.

Microsoft had previously said that concern over security issues as well as a belief that few consumers would be interested in Vista virtualisation were behind its earlier policy.

However, observers here and there criticised what appeared to be Microsoft's naked attempt to force consumers to buy pricier versions of Vista.

"Microsoft's explanation was, 'Well, consumers don't want to do this [virtualisation] anyway.' Well, if consumers don't want to do this, why are you prohibiting it?" said Paul DeGroot, an analyst with analyst firm Directions on Microsoft. "The EULA is a fairly artificial scheme that looks like an effort to force people [to] buy business editions of Vista."

That was what Microsoft appeared to want to rectify. But in defence of its u-turn, the company said: "Microsoft has reassessed the Windows virtualisation policy and decided that we will maintain the original policy announced last autumn.”

"This is a setback for desktop virtualisation and for future choice for consumers," said DeGroot, who said he was "somewhat disappointed" at Microsoft's reversal.

Redmond, he said, appears to be grappling with the inability of anti-piracy technology like Windows Product Activation (WPA) and Windows Genuine Advantage (WGA) to keep pace with its already-complicated usage rules – rules that become overwhelming once virtualisation is brought into the mix.

"Virtualisation opens the door to bypass Windows activation in several ways," he said.

For instance, using any retail version of Windows XP or Vista, users can create a single VM, put applications on it and then create as many copies of that first VM as they want. Though that is prohibited by Microsoft's licence and US law, it is an easy way to bypass Windows activation, DeGroot said.

Moreover, users should be able to store those VMs on a USB thumb drive and run them on another PC, thus conveniently taking their original computer and software with them – but again violating Microsoft rules and US law, DeGroot said.

DeGroot noted that maintaining its current restrictions, however, won't stop knowledgeable or accidental virtualisation users.

"The EULA is a very bad tool to dictate user behaviour or protect them against themselves," he said.