There are so many problems with this rumor.
First, Jobs has spent the last 20+ years jabbing Ballmer, and more recently jabbing his ineptness as a salesman in charge of a tech company. I'm sure Ballmer has heard these criticisms.
MS Developers would have to scream at Microsoft to include iPhone development support before they would include it. But why would they when it's FREE in XCode?
Microsoft couldn't accomplish this without Apple's help. Apple would have to provide the base firmware and documentation of such so that MS could include a decent debugger in VS worth anything.
.Net technology will never run on iPhone, just like Flash and Java will never. So MS would have to build a unique compiler just for iPhone development into VS. But build a compiler for what chipset? Apple can change the baseline SoC anytime, breaking whatever VS would supposedly be compatible with.
VS is an IDE with MS-based window elements -- these do not look like or operate like iPhone OS window elements. VS would now have to support a completely different set of window elements. New elements would require new touch-friendly attributes and methods as well.
Back on the compiler; Building a bug free compiler would takes years and be a huge investment for MS to endeavor -- especially for a competing platform. Ballmer would never approve it.
And from a business position, do you really think MS is going to build all this technology into their VS IDE, which is a pay-for program, to compete against their competitors freely available IDE? Nothing about this rumor makes sense.
Also, why would anyone actually use the VS IDE for iPhone development, when the one from Apple is going to be updated more often with the latest features? VS would have to have a release schedule months trailing XCode, which makes it overall VS-for-iPhone really inferior for keeping apps up to date.
This rumor has already played itself out as a hoax, and it should have been a ridiculously obvious one to any developer with a half brain towards business. If a Microsoft rep takes the stage June 7th, it will be for new something along the line of new apps or increased compatibility with Office... not for native support in VS for iPhone development.