Didn't they also challenge the Macintosh with something called Windows? We know how that worked out.
The mandatory "remember Zune?" comment is getting old and doesn't really apply here. Portable music players are consumer products. Microsoft rules supreme on the business market, and that will be the primary target demographic for this phone.
http://blogs.zdnet.com/gadgetreviews/?p=3762
"The vast majority of iPhone owners, 73 percent, use their mobile devices primarily for personal reasons, according to the results of a new survey by Compete.
On the other hand, 59 percent of owners of other smartphones primarily used their devices for business and work-related tasks, according to the survey."
All MS need to do is fuse the iPhone form factor and multi-touch UI with total integration with Windows and Office, and businesses will buy this thing in 100-packs.