Very good post. I'd like to suggest another explanation: they really ''do'' see what Microsoft is doing as cheating, and expect others to share their outrage. When you're "in the bubble", talking only with people who share your perspective, it's easy to believe everybody things they way you do. And Google's known for being smarter than everybody else when it comes to search, so at some level people there probably believe that the only way anybody could get results as good as they are is by cheating.
Yes, although in some ways MSR is less in the bubble than the rest of the company -- people go to conferences and are aware of what's happening elsewhere. Microsoft's bubble applies just as much here as Google's: I'm sure a lot of folks there can't understand why Google or anybody else would think there's anything wrong with what they did here. When bubbles collide.
My charter back in 2006-7 was "game-changing strategies", which meant getting people to think outside the bubble. So we did a lot of work analyzing Google's, Yahoo's, and Microsoft's corporate culture. One of the things that's core to Google's identity is preferring algorithms to anything that has to do with people, and that's very much on display with Binggate.
