This puts an end to the lawsuit filed by Emma Alvarado in February 2009.
In her original complaint, the Los Angeles resident accused Microsoft of coercing computer makers into forcing consumers who wanted to run Windows XP to first buy Vista, or later, Windows 7, before they were allowed to downgrade to XP.
"We're pleased the Court agreed that Plaintiff's complaint failed to state a viable claim and dismissed it in its entirety," Microsoft spokesman Kevin Kutz said.
US District Court Judge Marsha Pechman rejected Alvarado's accusations, saying that she had not proved Microsoft benefited from the downgrade practices it created and OEMs implemented.
"Nowhere does she allege that she paid to downgrade or that she did not receive a copy of Vista when she freely chose to purchase her new computer with that software," said Pechman.
"That she chose to downgrade to XP without extra cost does not demonstrate that Microsoft retained a benefit without giving value. Nor does the fact that she chooses to use only one version nullify the fact that Microsoft gave her value for the bargain."
From Pechman's perspective, Alvarado got as much as Microsoft out of the deal.
"If anything, it appears that Plaintiff obtained two versions of Microsoft's operating software for the price of one," she said.
Although Alvarado claimed that she had paid a $59.25 (£39) fee in mid-2008 to downgrade her new Lenovo laptop from Vista to XP, Microsoft denied it had profited .
"Microsoft does not charge or receive any additional royalty if a customer exercises those [downgrade] rights," a Microsoft spokesman said last year.
Computer makers, not Microsoft, charged users the additional fees for downgrading a new PC from Vista to XP at the factory.
However, Alvarado did not name Lenovo in her lawsuit.
'Downgrade' describes the Windows licensing rights that Microsoft gives users, who are allowed under some circumstances to replace newer versions of Windows with an older edition without having to pay for another licence.
In effect, the licence for the newer Windows is transferred to the older edition.
Microsoft's Windows downgrade policies came under fire long before Alvarado sued. In 2008, for example, Dell was accused of gouging customers to downgrade a new computer to XP.
Downgrading became popular in 2007 when users, unhappy with Vista's performance on the new PCs they bought, instead sought ways to run the leaner XP.
Last year, Microsoft revealed that it would let users downgrade from Windows 7 to XP Professional until April 2011.
Some computer manufacturers, including Dell, continue to offer factory downgrades from Windows 7 to XP.