By offering a low-end version of Windows 7 for netbooks, Microsoft hopes that many users will opt to upgrade to a more powerful version of the operating system. The catch is that Microsoft plans to 'encourage' users to upgrade by limiting the functionality of the stripped down version. One example of this given by Ballmer: Restricting the number of programs that can be opened simultaneously.
How many programs? We don't know, but we imagine plenty of people will be mighty pissed when that damned paperclip pops up and asks them to upgrade.
Update: Reader Duke points out that our buddies at Engadget posted a breakdown of Windows 7 versions earlier this month. The basic version, Windows 7 Starter, will allow only three applications to run concurrently.