What you are describing here is the cost of changing from an OS you know, to one that you don't. Since this cost greatly exceeds the sticker price of windows, or Mac for that matter, it is the real reason why people tend to stick with the OS they already know how to use.
It's one of the reasons why Linux never got much traction on the desktop. Sure it made a great desktop OS for the technorati but Joe Public knows how to do what he wants in Windows, and saving $50 isnt incentive enough for him to change.
As you say, "free is not enough".
Incidentally the exact same thing plays out with regard to apps. Office may have strong Open Source competition, but free is not enough there either to get most people to switch.
This effect is not limited to the OS itself, but extends to the flavor of the OS as well. Despite what the popular press says, windows 8 is not bad, but it is different. Vista was better than you think, but wasa different to XP and so on. Xp was the gold standard for a long time, so it's easy to forget how much people resisted it at first.
And before you get too smug, look at the division in the Linux market right now over Unity.
Here's the thing. The price of the OS is irrelevant. Free is not an advantage. Windows will exist on the desktop for many years to come, and will likely flop on the phone. But price will have nothing to do with either outcome.