Notice that Apple products are never labeled “Microsoft Killers”? As long as Apple is focused on developing new tech instead of wringing it’s hands about the competition (and has the cash to afford it) things will stay that way.
Instead of going head-to head with the iPad, think Microsoft would be wise to continue its focus on XBOX/Kinect - a multimedia platform that Apple hasn’t been able to monopolize. When (since it’s basically inevitable) Apple releases it’s iTV or whatever, there will definitely be some sort of Kinect-like interface, so Microsoft has a chance to create (and possibly own) the interactive home entertainment center field before Apple jumps in.
The XBOX experience needs some work (like not having to pay a pricy Gold subscription fee to stream Netflix, HBO, etc.), but the opportunity is there if Microsoft wants it.