OK, so maybe Microsoft has not exactly “embraced” Firefox, but they have invited Mozilla developers to visit Microsoft's Open Source Software Lab as part of the Windows Vista Readiness Efforts. From Sam Ramji:
I am the Director of the Open Source Software Lab at Microsoft, and I'm writing to see if you are open to some 1:1 support in getting Firefox and Thunderbird to run on Vista.
As part of my mission as an advocate for open source applications on Windows, I've gotten spaces set aside at the Windows Vista Readiness ISV Lab. In the past the company has only invited commercial software developers to these labs. I'm committed to evolving our thinking beyond commercial companies to include open source projects, so I went to the non-trivial effort of getting slots for non-commercial open source projects. (Quote from: Mozilla.dev.planning post from Sam Ramji)
Matt Mondok thinks this is a positive step in the right direction:
it's great to see that Microsoft is concerned about projects like Firefox and Thunderbird. Sure, this could be viewed as a publicity stunt since Ramjii posted in a public forum, but that doesn't make the offer worthless. If this is what needs to happen for Firefox to run unhindered on Vista, then I'm all for it. (Quote from: ars technica)
I am withholding judgment until I see more. I think that we have seen this before with Mono. Miguel de Icaza had a good relationship with the .NET engineers for a while, but more recently has struggled with the PDC group at Microsoft and has been unable to get a Mono BOF at PDC despite great demand for the gathering. The invitation from the Microsoft Open Source Software Lab was probably offered with good intentions; however, any impact (positive or negative) resulting from Mozilla's involvement may depend on the response from other groups at Microsoft.