I'm still trying to figure out if Microsoft's Azure announcements are meaningful beyond just providing a bit of color for the newly revealed cloud services.
Microsoft blogger Mary Jo Foley provides some good insight in her "Microsoft's Azure cloud platform: A guide for the perplexed," though the fact that she even had to write such a piece speaks to the lack of clear message coming from Microsoft.
The Microsoft approach (as expected) is heavily dependent on and influenced by Microsoft's own technology and practices. That's worked in the past, but cloud efforts to date have been dominated by nonpackaged software companies, namely Amazon and Google. Because of this, the way that developers interact with the cloud (APIs and transactions) is quite different than the standard Microsoft deployment mechanics.
Based on the existing information, Azure isn't very compelling. For example, with AppEngine, your applications automatically scale. Not so with Azure. Instead developers have to write their apps in a new way, which seems self-defeating.
I also wonder how an all Windows-based Cloud will deal with the threats of viruses, hackers, botnets, etc. Security was barely mentioned, but one could easily argue that Microsoft hasn't always had the best track record in that area.
So far, I would say that you can't count Microsoft out but that it's not leading the pack. CloudEnterprise.info has a comparison chart of how Azure stacks up with other cloud offerings.