Part of the deal would be for MS to compensate AOL to "undo" the netscape buy-out. Then there is no harm to AOL.
Consumers don't build tools, they use them. Consumers don't have WinXP yet. All the web site developers would have to make sure their web sites work with netscape (most already do) in order to support an IE free WinXP, preferably before it was shipped - I am still hoping it is delayed another year while all the new antitrust concerns are addressed.
If you don't like forcing the web developers into standards, fine, make it the user CHOICE to use either IE or netscape (or both or neither). The user can then pick what works best for the sites they visit. For this to work, netscape has to be delivered with WinXP and one of the initial install questions is "Which browser do you want to use? (Netscape, Internet Explorer, Both, Neither)". If both is chosen, then the installer would ask "which one do you want to be the default browser?".
OS/2 is a completely different beast than Linux, so the result would not be the same. OS/2 was not open-source and was not free. It also depended on proprietary code licensed from MS for compatibility with windows programs. The solution I am proposing for Linux is basically to open-source the win32 api in Wine. So Linux would not fall in the same trap OS/2 fell in.