"Fair use" is not a law. They don't have to allow you or make it easy for you to do. They just can't sue you for it.
Actually, it is a law -- part of the Copyright Act. But it's a protective law, not a regulatory law.
Thus, like Arn said Microsoft can prevent you from playing perfectly legitimate content on the Zune and you can vote with your wallet not to buy a Zune.
Now, if you've already purchased a Zune and then install this software and your DVD rips no longer play, you might have a legal claim against Microsoft best handled in a class action lawsuit.
And this law protects you against a lawsuit by NBC for ripping your DVDs in the first place.