Remember that MS is a convicted predatory monopoly. They have on several occasions in the past used their current market penetration in one field to either destroy the players in another field, so they could mop up, or convinced users not to use the alternate players, thereby getting a free pass into the field. They only innovate if they face serious competition in one of their fields.
I believe that having 3 major companies in the search market field will contribute a lot more to competition than having only 2 major players. If they really have a better product than Google or Yahoo! they will take over the search market very quickly.
On a off-topic sidenote, I hope this will stop the absolute flood of apps shipping with the Yahoo! toolbar. I have no interest in installing it, and I find it in poor taste when it ships with a product I paid for. Such a company will not get my money a second time.