The business case for open sourcing dev tooling is that more developers will use them and build on them and that brings more people to your platforms.

Sure. Any proof at all for that? I mean it's the obvious answer, but generally in business people who don't pay for things tend not to pay for things. In fact, in the enterprise having a big budget is the way you keep your corporate power. Free stuff isn't a way to keep your budget high.

Again, I would like to agree with your thinking. I just don't think the real world backs it up.

It's pretty simple, they make a lot of money off Azure, and open source software is a complement to Azure. See the classic:

https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/

In particular, open source software prevents people from getting locked into any of the AWS, Linux, iOS, or Android ecosystems. All of those are popular software development ecosystems that Microsoft does not own or influence very much.

Not convincing or even relevant IMHO. Azure infra is largely closed source and Microsoft is making a ton of money off it.