Interesting post by Niall Kennedy. My opinion is: No. And Yes.
No in the sense that the feed reading capabilities in IE7 are very basic and are not intended to compete with full-fledged feed readers. That could change of course if Microsoft wanted to improve IE7's feed reader beyond its rudimentary features at some point. Vista is really not that much of a corporate concern now given slow uptake of Vista overall. Microsoft's feed reading implementation within Outlook 2007 is horrible so no competition there. Benefits of the Windows RSS Platform (installed as part of the IE7 setup) has not been effectively explained by Microsoft and its FeedSync effort does not seem to connect to what the Office and SharePoint teams are doing at this point. SharePoint exposes feeds (RSS only) but is not a feed syndication platform and no one should expect a cohesive release of such a feed management capability prior to the next full SharePoint release (we're talking 2010-ish). NewsGator's Social Point solution integrates with SharePoint today so less pressure on Microsoft to react.
Yes in the sense that Microsoft could actually make a move to acquire NewsGator - that would be the game changing move by the folks in Redmond. (It also adds a lot of value to its Windows Live effort; leveraging NewsGator's widget capabilities might be synergistic with Microsoft's broader advertising directions.)
If I were IBM, I would be thinking: "hmm, maybe we should acquire NewsGator and integrate it into Lotus Connections and take advantage of its SaaS platform. That technology base fills a huge gap in Connections and would make us Microsoft-friendly for those shops looking for something to extend Office and Sharepoint but disappointed in its social computing capabilities which Connections solves." Nahhhh....
... Windows client FeedDemon needs to compete with feed reading capabilities built-in to Windows Vista and Internet Explorer 7 or open-source clients such as RSS Bandit.
NewsGator's move to free is an interesting risk for a changing business. Competitors such as Attensa do not have a similar strength in the desktop client space, and NewsGator will continue to worry about Microsoft shipping an update to SharePoint that could shake up their enterprise market. In the mean time thousands of consumers will be able to download quality software for free, and the small desktop clients can continue developing cool new features funded by enterprise usage.