On one hand, we have Visual Studio, a built in phone emulator, the .Net platform and excellent documentation/tutorials. It's almost stupid how easily you can create fairly advanced "form based" applications with WPF. Games are fairly straightforward with XNA. The build in emulator works with VS like a dream, dropping in and out of breakpoints, etc.
I could gush all day about the development environment.
However, App Hub (the place to actually publish your app) is an absolute nightmare. Built entirely in Silverlight, it is buggy, clunky and unintuitive. There is basically zero documentation, descriptions are vague or just wrong. Stats about your app are at least a week delayed and are not detailed. You can only see reviews for your app in your local market (e.g. US market). My app has a few reviews from England, but I have to use a third party tool to view them.
I could rant all day about App Hub.
And once you're at the point where you are submitting an app, you are already committed. The poor experience won't stop you from submitting, and probably won't stop you from developing another app.
To be fair, they did a major overhaul of the App Hub just prior to Mango which corrected a number of other issues. It just seems to take them a long time to correct what should be obvious issues or usability problems.
This isn't an argument when their competition has deeper pockets...
I'm not so sanguine. First Mover Advantage (http://en.wikipedia.org/wiki/First-mover_advantage) is a very real effect across many industries. In fact, the some of the patterns in the wikipedia entry have already been seen in the smartphone market (pre-emption of scarce resources, free rider effects). And we don't have to look too far back in history to find an example of an OS with a superior UI (original Mac) getting trounced by an OS with a huge application library (DOS/Win3.1). I don't think we see Microsoft playing a significant role in the smartphone market. Unlike tablets, there aren't too many customers needing to run Win32 API apps on a phone. Until we see another inflection point in the platform market, I think Windows will remain niche on the phone and modestly successful on the tablet. The wildcard is the IP litigation, I suppose. If Apple were to be wildly successful at crippling Android, I imagine OEMs would flock to the WinPhone platform.
I do not know if anybody here has tried the Microsoft developer tools but they are more advanced than anything even Apple has.
Expression Blend for example is something Android developers need badly. I hope that with Adobe letting go of Flex that Google is going to poach a lot of their IDE team like they did with Chet Haase.
What they are missing was a more open API and a more in your face marketing attitude. Nokia will bring that to the table.
Microsoft has deep pockets and they need to be in mobile to stay relevant (even if they earn more money suing Android manufacturers). You next phone will be a Windows Phone.