I have been told that Microsoft employees are discouraged (perhaps even forbidden) from contributing to Free Software projects. Can you refute this?
Contributing to Microsoft-owned open source projects is acceptable, in some cases. A small number of products are run in an open-source manner within Microsoft, and actively recruit contributers inside the company.
I don't want to talk too much about internal policy -- I'm sure the legal office (LCA) wouldn't appreciate me pontificating about how cracked-out I think their opinions on F/OSS are -- but in general, 'forbidden' would be a good description, both for contributing and just reading code. There are exceptions, but they have to go up several levels of management and be directly work-related to be approved. (I think MSR is a different world, though.)
Honestly, most devs I know are too slammed with work as it is to keep up with a large-scale F/OSS project after hours. Every once in a while you get enough of a breather+motivation do small hobby projects and keep up with new technology.
The F/OSS restriction is the #1 thing I don't like about my job, but honestly, it's about the only thing.
That said, if you work on IE in your day job and want to contribute to Firefox on the weekends, that wouldn't fly for obvious reasons.
Oh and PS: You might notice that I use all manner of social media sites like Flickr and YouTube on Microspotting. You might notice that I publish the site using an open source content management system. Before you get all “ZOMG, TRAITOROUS MICROSOFTIE!!!11!1!!” understand this: I don’t buy into the idea that working at Microsoft means you can’t use competitors’ tools. In fact, I think that’s the best way to stay in touch with a constantly shifting, super exciting industry. I’m a Web 2.0 geek, so I use whatever tools interest me at the moment — regardless of who makes them. Working at Microsoft does not equal flunky.