With a big asterik-- "customers... must not attempt to generate infringing materials..." It hinges on what *Microsoft* decides "attempting to generate infringing materials" means. You'd like it to mean that it only excludes use when you're doing something you know would infringe copyright, like "reproduce the entire half life 2 source code." But who knows.
That's just legal speak for "any copyright infringement is your fault". The question though about microsoft stealing people's code and reselling it still stands.
Proving intent is difficult. This basically means if you have emails in which someone describes their work as copyright laundering, Microsoft can use that to get out of indemnifying you.