Some links to why VSS might not be the best choice of version control system:
This is a Must Read:
It appears that they do not. The general consensus (well supported) is that they use a derivation of Perforce which is called SourceDepot. They have also used their own internally created systems. Allegedly the Windows 95 team used a system called 'slime' (SLM, Source Library Management) which wasn't very powerful.
I worked at Microsoft for 2 1/2 years, and SLM was used for most of the big projects at that time (1996-1998). That included Windows 9x, IE, Office, and Windows NT. My understanding is that Microsoft switched to SourceDepot at the beginning of 1999. VSS was used for some small projects, but most 'real' projects used SLM
This e-mail is also worth a read. Here is an extract:
…a group from our company went to Microsoft for a meeting and they asked us what we used for source control and (at the time) we were using VSS and they laughed at us! That specific team inside Microsoft was using a rebranded, renamed version of Perforce at the time and they thought we were dumb for using VSS.…
Microsoft have written an all new system called Visual Studio Team System which looks to be very good. The usual caveats apply though - it's a Windows only system and experience of it in the real world will reveal how much server power is needed to use it effectively.