(FORTUNE Magazine) – As the U.S. got back to business after New Year's, executives fanned out from Microsoft's Redmond, Wash., headquarters on a mission of damage control. Brad Chase, a product marketing vice president, showed up for lunch with FORTUNE reporters in New York toting a sheaf of papers that listed a series of "talking points." These were to help Chase and other executives explain to the media why Microsoft is standing firm against the U.S. Department of Justice and Federal District Court Judge Thomas Penfield Jackson, who in December enjoined the company from bundling its Internet Explorer Web browser with its Windows 95 operating system. The first point on the first page read "Microsoft has done a poor job of communicating the overall issues." The second page was headed "Our Poor Communication."

No kidding! Since Attorney General Janet Reno first filed a complaint about Microsoft's competitive practices in October, Microsoft has responded with a foot-in-mouth insouciance reeking of arrogance. "To heck with Janet Reno," said executive vice president Steve Ballmer. The Justice Department is "ill informed," asserted the company in one court filing. If it wanted to, said another, Microsoft had the right to bundle "even a ham sandwich" into Windows 95.

Needless to say, Microsoft's response has been panned--even by the company's friends. Says a PC industry executive: "We thought Microsoft was in the catbird seat on this issue. But instead of going to the Department of Justice and negotiating a quick settlement, they pour acid on an open wound." Americans don't take kindly to seeing their government maligned, especially when the government seems to be doing little more than protecting that most sacred right--competition. Surely, Microsoft's outbursts had hurt its public image.

Not surprisingly, Microsoft officials say that's just not true. "After the start of these 'activities,' shall we call them," says chief operating officer Bob Herbold, "we've achieved the highest ratings we've ever achieved amongst both the general population and amongst PC users." Herbold, who came to Microsoft three years ago from Procter & Gamble, says the company checks its image with opinion polls every four months. "We have," he says, "the support of the American people."

He's telling the truth.

As part of this package of stories covering Microsoft's current judicial woes, FORTUNE commissioned its own nationwide polls, which were conducted between Jan. 5 and Jan. 7. They show that Microsoft does indeed have immense popular support. Americans love Microsoft. They love its products. They admire its CEO. They think the company is innovative. And more side with Microsoft than with the Department of Justice in this judicial battle of the browsers. (FORTUNE commissioned two polls: For more on what they reveal, see boxes, and for the complete results, visit our Website at http://fortune.com. For a fuller sense of the Microsoft charm offensive, read David Kirkpatrick's interview with Bob Herbold following this story. And senior writer Jeff Birnbaum dissects Microsoft's Washington fumbling in the two pages following the interview.)

Herbold says his research shows that Americans admire Microsoft more than any other company. Again, he may well be speaking truth. In FORTUNE's survey of the general public, only IBM got a more favorable rating, and the difference between the two companies was small. Microsoft's products are more highly regarded than those made by Hewlett-Packard, often cited as a paragon of engineering. Among PC owners relying on Microsoft DOS or Windows, 86% rated their operating system as "excellent" or "good."

So why, if the company was getting results like that even after its petulant response to the authorities, did Microsoft send out Chase, Herbold, Ballmer, and others on a PR mission that can best be described as Humble Pie Week? The day Herbold revealed Microsoft's survey results to FORTUNE, he also volunteered that "we don't always [defend our positions] in as gracious a way as we can. There are some statements we've made that we probably never should have made." This may be the first time the words "Microsoft" and "gracious" have ever shared a sentence in a general-interest publication.

What Herbold knows, and what the data in FORTUNE's polls confirm, is that the public's love for Microsoft isn't entirely unalloyed. A sizable 41% agreed with the statement "Microsoft is a monopoly"; 35% disagreed, and 24% didn't know if that's a fair description. Such numbers could presage trouble, since a very large majority--fully 80%--also believed that the Justice Department ought to enforce antitrust laws.

In the browser dispute per se, however, the court of public opinion seems inclined toward Microsoft. Just over half the people surveyed by phone said they knew about the case; of those, 38% agreed with Microsoft, 28% with the Justice Department, and 34% were either neutral or unsure.

Respondents to FORTUNE's online poll, meanwhile, were more apt than those in the telephone survey to label Microsoft a monopoly. Indeed, heavy online users--those who spend more than eight hours a week on the Internet--sided with the Department of Justice in the browser dispute.

Most Web surfers use a Netscape browser and presumably feel loyalty to that product. But heavy users' anti-Microsoft votes take on a bit more significance when you consider the slew of knowledgeable industry observers who have been willing to criticize Microsoft publicly. Says venture capitalist Ann Winblad, a longtime confidante of Gates: "They've mishandled their public relations. If Microsoft turns customers off, there is a lot of business to be lost." Securities analyst Bret Rekas of BancAmerica Robertson Stephens wrote in his online newsletter, "It is unclear why Microsoft insists on provoking the Department of Justice and is risking antagonizing the court with its antics." (For the critical take of another expert, see Stewart Alsop's column in this issue's Techno File.)

The bad buzz could hurt Microsoft in Washington and even start to erode the popularity evident in polls like FORTUNE's and Herbold's. To safeguard its image, Microsoft has begun walking a public-relations tightrope, defending its legal position while trying hard not to further alienate computer users and industry experts. Says Herbold: "We're concerned about IT professionals; we're concerned about the business decision-makers. We don't do research with those groups regularly, but we're doing more now."

Microsoft faces a number of challenges as it tries to assuage the worries of those groups. Gates has made it clear that having the right to bundle the company's Web browser with Windows is something he considers crucial, and he's hired top legal minds to defend that right. He may very well have a case. In 1995, Microsoft settled an antitrust complaint by signing a consent decree in which it agreed not to engage in predatory marketing by bundling separate software products with Windows. But the decree assumes a degree of product distinctness that doesn't exist between Windows 95 and Internet Explorer. The programs have so much in common that if you remove from a PC equipped with an up-to-date version of Windows 95 all the code that Microsoft sells at retail as Internet Explorer, the computer won't work. And yet that may be the only remedy that the language of the consent decree allows the Justice Department to seek. In other words, by the letter of the consent decree, Microsoft may be doing nothing wrong; the Justice Department may be trying to perform surgery with a hammer.

Gates' problem is that while Microsoft might be justified legally, knowledgeable observers will have a tough time ridding themselves of the suspicion that the company is flouting the spirit, if not the letter, of the consent decree. A simple solution might be for Microsoft and the government to agree that future versions of Windows 95 would not automatically display an Explorer icon on the desktop. (Judge Jackson demonstrated that removing the icon was possible even for nontechies.) To access the Internet, users would then have to decide whose browser they wanted--maybe Microsoft's, or maybe Netscape's or some other. In a brief filed Jan. 9, Microsoft dismissed such a solution, saying that it is not required under the consent decree. Given Gates' relentless pursuit of strategies that make life difficult for archrival Netscape, it's almost inconceivable that he would countenance such a deal.

Even close allies of Gates consider his intransigence a mistake. One executive compares the browser dispute to Intel's Pentium debacle in 1994, when the chipmaker tried to pooh-pooh a flaw in the product. Customers were outraged; Intel ultimately had to spend $475 million replacing the chips. Says the executive, the browser dispute "could absolutely mushroom into that kind of firestorm."

So far, as the polls make clear, the experts are wrong--Microsoft hasn't been harmed by its aggressive rebuttal of Justice. But even if it gets past its current antitrust woes, its products have achieved such ubiquity that it may have to accept increased government scrutiny as a cost of doing business. If that's the case, Microsoft can't afford to be perceived as a belligerent monopolist--not by customers, not by industry observers, and especially not by the government.

Heck, it can't even afford to be perceived that way by the media. The last page of the company's "talking point" packet read: "Tell us what we've been doing wrong." Sounds humble. Sounds nice, even. Don't be fooled. It's just the sound of Microsoft sharpening its attitude for the next millennium.