Microsoft's announcement seems like a total adoption of jQuery. Future versions of Visual Studio will ship with jQuery in the package. Visual Studio will include IntelliSense that understands jQuery functions and provides documentation. Microsoft Product Support Services will provide help for jQuery-based projects. A Microsoft shop can use jQuery knowing it's fully supported.
Microsoft will contribute patches and feature improvements back to the jQuery community through standard channels, so this doesn't appear to be a case of "embrace and extend" that will lead jQuery off into incompatible territory. jQuery's plugin architecture makes it easy for anyone to extend or change the basic functionality of the library; Microsoft can add its own functionality through plugins but still take advantage of the jQuery community contributions.
I'm hardly impartial on this development; I've been using jQuery since its inception in 2006, and it's changed the way I write Web applications. jQuery's design makes it easy to solve common problems with a minimum of code. Microsoft made a great choice.