Solaris 10 on x86, I take it. That's the Linux Desktop System, update 3. The whole idea is not to freak out Windows users, thus the XP desktop theme. You can customize it, if you want; it doesn't have to look that way.
Nothing dramatic going on between Sun and M$. M$ simply agreed to license Java and stop adulterating it. Sun and M$ agreed to work together on interoperable Web services standards. Nothing sinister is going on.