If you claim that you "never had to upgrade Windows to be able to install some other random app" you probably haven't used Windows much then. There are games that need explicit version or newer of DirectX. You can't even produce from the C or C++ sources the binary application that runs on any Windows XP with the latest Visual Studio (11). Any C/C++ application built with Visual Studio 2010 won't run on Windows 2000 or XP prior to SP3. We developers try to build the applications that run on as many targets as possible, but even MSFT doesn't support us enough for that, seeing the older versions as the competition to their newest "shiny thing." Which is not funny considering millions and millions of users still running Windows XP.

See the various opinions on MSFT intentionally removing the binary compatibility which already existed in their libraries here:

http://news.ycombinator.com/item?id=3648209

Do you happen to know how many users are running Windows < XP/SP3? For our install base (games company) it's less than 1%. Is there a compelling reason not to upgrade to SP3 if you're on XP?

Dependencies are bundled on Windows. It means installing App B doesn't affect your App A. It also means that security bugs must be fixed at the app level, not at the library or OS level.

Then you're lucky, because plenty of applications required you to install the Service Pack 2 on XP to install them, .NET application often required newer versions, same with games and DirectX, etc.

Not entirely true. While Microsoft won't upgrade your Windows for free (creating the demand for support for ancient versions of the OS - things that will run on XP) they will make software dependent on service packs and fixes. It's not a new version with new functionality, but it's an upgrade nonetheless.