I think that Microsoft is in a tough spot, they just can't copy the iPad; they have to incrementally jump ahead of the iPad.
Now after saying that; if they develop a good device that starts up in a smiliar time to the iPad and has a Microsoft Office lite and USB support and is stable they will get some market share. You do not have to look to hard on this site to find people who are livid about not being able to do simple things like organize photos, import a file or save a file to a USB device so there are people that would move in that direction even if it means giving up some of the magical things the iPad does.
In the mean time the iPad will get better so Microsoft has to shoot at a target that is moving fast and there could be 20,000,000 iPads by the time they get their initial product on the ground. With that large of an installed base there will be significant product inertia.
The iPad has created the market, it will be interesting to see how other companies try to take market share away from them.