There are good reasons for Microsoft to be giving away so many phones. Ballmer is most likely tired of going to meetings where his own employees have iPhones he threatens to smash. It's not as if Microsoft came up with a revolutionary idea, either; Apple and Google gave away plenty of phones when they launched their efforts. All of those phones rattling around help to evangelize the product.
Now there will be no reason for any Microsoft employee to have an iPhone, or an Android phone for that matter, unless they're testing in a lab. Of course, if all of them at the main campus end up with the premier Windows Phone 7 carrier, AT&T's network around Redmond will likely go into meltdown mode. Oh well, the silver lining is that it will also take iPhone users down as collateral damage.
The most important reason for Microsoft to sprinkle phones on their employees is to create an immediate market for Windows Phone 7. Sure, it's a forced and non-diverse market, but it ensures that at least someone will be using the product immediately and creating demand for applications. Having plenty users in the proximity of the development team, but not on the development team, will no doubt provide them with copious amounts of feedback -- good and bad. It's another example of Microsoft eating their own dog food.