wow, that is one way to motivate the troops. The lack of mentioning of WP7 at all and the re-emphasis of Andriod as a competitor makes me think it's unlikely they will be running Andriod any time soon.
I don't follow your logic. Windows 7 isn't much of a competitor. It had a smaller debut than Android and iPhone, by a large amount, and is being outsold by both so the gap is widening. If I were Nokia, I wouldn't be worrying about fellow also-rans in the industry, like Microsoft. I'd be worried about the products that were eating my lunch, and I'd let Microsoft figure out how to protect their own lunch. If Nokia choo…
My hypothesis is that Windows Phone 7 is a stop-gap measure introduced to build their brand and app portfolio while they're working on the 'real' thing. Note that WP7 apps are .NET apps, so transition to a pure .NET kernel would be relatively easy. Of course I have nothing but a hunch and some rumours, to base this on, but I find it highly unlikely that MS is just going to sit there while Google is building the dominant platform for internet usage (note that in some countries, like India, smart phones are now the most popular device for accessing the internet).
Remember that although us geeks are picky about the OS our phone runs, a the large majority of phone buyers really don't give a crap and switch easily. My girlfriend goes into a store and just picks out something shiny, possibly looking for specific features like a keyboard to type out email on. And app portfolio isn't just a matter of quantity. About 10% of the apps on any given platform probably satisfy 90% of a user's needs. Microsoft really just needs to have that 10% to be a compelling alternative, and they have the cash to simply write it themselves or pay people to write it for them.
So all in all, I don't think that Microsoft is out of the game just yet. On the contrary, they're just getting started, and this deal with Nokia is going to be very valuable for both companies.