In his theory, no one would use the old client but they would use the new client since it's already installed
Any change in the protocol would (like I already said 2 Times) be detected immediately, there is no sneaking in. Even if they include only a 0.000000000000001% fee to MS, all Clients with the old protocol would instantly not be able to transact with the updated clients.
"Realizing" a change in protocol doesn't mean all transactions immediately stop. It means splitting the network. If you "realize" a that most of the world changed protocol (due to updating of the client software) you still can't change the fact that now the majority (it may be 50% and it may be 80%) of transactions will be made with the new protocol, and you're out of the loop - you're the minority building on the original blockchain.
If MS updated all their clients to work on a new protocol, and you're not in it, then you're on the original bitcoin network. But everyone you want to trade with is on the MS bitcoin network (your grocery store, your plumber, your babysitter, your car dealer - they are all using the MS client). So you either convince everyone to stop using their client/protocol (and hence cancel all transactions made until you managed to convince them) and move back to the original protocol using other clients.
This of course requires that MS program their client to manage to update in near perfect synchronicity or else, like you said, many transactions will be rejected.
This is stupid, 1)because with asic mining with a computer will be useless
Yeah... Didn't think of that. I'm assuming miners won't all be dumb enough to all use the same proprietary 3rd party auto updating software...