As Microsoft wants my ass...

"Once that party ends and the main hypervisor goes to free as Microsoft and XenSource want, VMware will need to replace a whole lot of revenue fast."

Just because MS can't successfully charge for virtualization today doesn't mean it's going to stay that way. Microsoft always charges for a product if they can. At the very least, "free" licenses to MS's virtualization will only be bundled with other paid products. There's no way on earth that MS will give away its virtualization products to people who, for example, want to run Linux distros and BSDs.

Once MS comes to market with competent products expect the usual bundle/price war, but nothing from Microsoft will ever be truly free.