They want to keep all doors open, I'm sure. They scoffed at the idea of making a handheld before, but they scoffed at other things they've had to backpedal on, so I never count anything out.
Creative's device will be a bit different because it's a HD-based (40 GB) device with no ROM or other removable storage as far as I can tell (Even CF which would make sense, or a FireWire port to plug in DV devices directly), so makes for only a portable viewing device that connects/transfers between PC's. There is also no need for complex 3D chips of any sort, obviously. Microsoft could "get ideas" but I'm not sure what it would tell them other than how attractive some people might find features like that if they should make it available through a gaming-focused portable. The costs won't really line up, the designs would have widely different considerations, and the target groups will be pretty different, so even sales numbers (and I don't think the device would sell too well, though I guess that depends on the price) won't necessarily turn on any lightbulbs.
Microsoft COULD create a device similar to the PSP if they want--question is if they want to start investing the time to do so, if they think the market lucrative enough and think it has crossover potential with the Xbox and following devices, and if they're willing to take a similar loss in that arena should they be wrong. (And they already know such a device won't be cheap enough to fit into the GBA's sector, and that the PSP is still unproven, doing the same thing, and going to beat them there no matter what they decide on now.)
I think they're going to bide their time and watch--and I certainly don't see Creative's device changing their mind about that.