The New York Times writes that Microsoft "evidently surprised analysts by predicting significantly higher expenses in the next fiscal year".  This, apparently, is what happens when non-technical writers write about technical companies :)

If they'd have done some research they'd have seen that Microsoft is gearing up to provide free online storage and that the bigwigs there have been predicting this surge in spending for a while.  I personally can't wait, I'm impressed with their Windows Live efforts so far and more direct competition with Google can only bring better things.

They're building out an infrastructure to compete with Google, it'll be interesting to see how that goes.  Two different companies with two very different approaches to scalable systems:  Google built on cheap, disposable servers, Microsoft built on their enterprise servers and presumably Dell hardware.  For as good as Google's application performance is in general they've definititely seen their fair share of problems, so this will be a good litmus test of how Microsoft's stuff stacks up.