MS would have to be pretty foolish to think that a motion control peripheral would somehow give them part of the market Wii is capturing with theirs.
First, since it's a peripheral, and not the standard controller, pretty much any game made for it would still have to be designed for the regular 360 controller as well. If a developer is doing it for both, it means one or the other will suffer, and more than likely it would be the motion controls. If the motion controls end up sucking, it defeats the entire purpose of the controller.
Second, it isn't necessarily the controller that is giving the Wii its success, it's the ease of use. If MS is developing this, it's probably not going to change the overall game catalog of the 360 down the line. MS may want a chunk of the Wii's target audience, but their historical game selection doesn't really mesh with that plan.
If MS is smart, they will bank this tech towards the next system. I think given the success of the Wii that motion controls in some way, shape, or form will be standard in all the follow-up systems. Nintendo will obviously have the advantage given their extra system's worth of experience, but how the companies try to differentiate themselves next time around will be the key to how the next generation of consoles plays out.
Nintendo showed this time that innovation can be a huge plus for your system, so we'll see if MS and Sony primarily stick to their "bigger, better hardware" mantra, or if they go out on a limb and try to broaden their base. I guess we'll just have to wait and see.
The dedication you show to any particular console or company is inversely proportional to the number of times you have gotten laid. If you get laid enough, even if you prefer a certain brand, you just don't give enough of a shit to argue about it on the internet.