Some people might argue that this is simply a case of Microsoft "eating their own dog food" by using the products that the company makes. However, dogfooding is best defined by the case where the people who make the product are actually using the product. This policy, which seems to be "all Microsoft dogs, cats, parakeets, and gerbils will eat dog food," has the potential to cause collateral business damage.
Of course the Windows Mobile group should be using their own product, because that will give them the experience to know what needs to be changed. But Microsoft is a big company; many other groups at Microsoft will no longer have the best tools to do their jobs, because Microsoft doesn't make the best tool in this case. In any case, it wouldn't hurt to have employees using competing products, especially if they shared their experiences and reasons for preferring an iPhone, BlackBerry, or Palm Pre to a Windows Mobile device. Think of the money they'll save by using employees instead of holding focus groups.
The problem isn't that employees want iPhones, but that employees think they can get more work done with their iPhone than with Windows Mobile. That is not the fault of the employees in other Microsoft divisions. Instead of giving employees substandard tools in the form of the mediocre Windows Mobile product, Microsoft should take this as an honest but brutal assesment of Microsoft's mobile computing platform and strive to do better.
At least we have a new benchmark for Windows Mobile. The product will be successful when Microsoft no longer has to force its employees to use it.