Could Microsoft literally afford to buy Square Enix? Yes, they could.
Would it make any sense at all? No, it wouldn't.
Would Microsoft's investors stand for a fresh $2 billion in losses for their H&E division which is associated with almost no short-term return and questionable long-term return? Absolutely not.
Microsoft is already under pressure to generate a single-year profit with their 360 division. They're going to do it however they can. Investors won't keep putting up with an entry into a new market if Microsoft keeps under performing even worse than expectations. Square-Enix is *not* even close to that valuable to Microsoft -- they don't have any games that approach the popularity of GTA, for example.
Further, Square-Enix could not be profitable under Microsoft. They require Nintendo hardware right now to generate a profit -- the DS is their primary income for the foreseeable future, and the Wii will be their #2.