You underestimate MS.
What seems to have gone unnoticed about this choice is that it gives MS a good chance to kill off Firefox and Opera.
As is generally lamented here, developers tend to write their code for as few platforms as possible and then tweak it to run on others if they're important enough. This means that few sites are going to want to keep multiple versions of their video files around. Thus they're liable to only encode videos in the most prominent format.
Google and Apple had already signed on with h.264. And while Google is supporting Ogg Theora, Mozilla and Opera have refused to use anything but Ogg Theora. Finally, MS also went with h.264. This firmly put the three major systems vendors on the side of h.264 and left Mozilla and Opera on the other side.
This means that anyone that wants to target average users, who are unlikely to change their browser unless the OS updates it, must at least use h.264 or Flash. YouTube can already be rendered using HTML5 with h.264, and this is the most likely path that other sites will go with as HTML5 gains share on the internet.
While, HTML5 may do a good job of replacing Flash, Apple's push to kill Flash directly only aggrevates the issue in ensuring developers that want their websites to be seen on the iPhone/iPad/iPod cannot use Flash.
If you put all of that together, then it seems likely that the presence of Flash will diminish as HTML5 replaces HTML4 and h.264 is the likely cantidate for the video component.
By waiting to announce their position until last MS won't lose nearly as much credibility as if they'd come out first saying that they were against Ogg Theora, but they'll still be able to put some pressure on Mozilla and Opera. If h.264 does win out on net presence then Mozilla and Opera will either have to recant their position on the video codec and lose face, or they'll be visiting Netscape.
...Or maybe I'm just paranoid...
Microsoft's Internet Explorer 9 shuns open video
