I think it more likely that Microsoft continues the ABI-hosting of Linux like it is currently with WSL. It doesn't make sense for them to use third-party kernel when the one they have works well enough and supports a long legacy of hardware and software, and it's something they can maintain control over.

If Microsoft feels competition from Linux, it makes more sense for them to allow hosting of Linux as a user-space application on their platform, rather than have a user migrate away.