No need to worry IMO.
Of course we should be weary when it comes to stuff like this, but the license agreement is IMO a lot better than others. And I also think people search too much into this.
First of all its important to determine who owns the material you upload. Microsoft is very specific here:
"Content includes anything you upload to, store on, or transmit through the services, such as data, documents, photos, video, music, email, and instant messages (“content”). Except for material that we license to you that may be incorporated into your own content (such as clip art), we do not claim ownership of the content you provide on the services. Your content remains your content, and you are responsible for it.".
Simply put; I always keep copyright on the contents I upload and store on MS' services. As such Microsoft simply cannot use such material for other purposes than those provided by the service I'm using. If they would they'd violate their own policy which grants me full ownership and copyright.
Then the dreaded paragraph mentioned by the article:
"When you upload your content to the services, you agree that it may be used, modified, adapted, saved, reproduced, distributed, and displayed to the extent necessary to protect you and to provide, protect and improve Microsoft products and services."
I hope we all /do/ realize that if Microsoft creates a backup of my material they're basically reproducing it. If Microsoft puts my material onto a backup service to make sure everything continues to work they're basically (re)distributing it. When I upload pictures and one of MS services changes the resolution from, say 2048x1536 to 1024x768 then they're changing the content.
What I also consider very reassuring is the section which explains the "Can Microsoft remove contents from the services":
"Yes. We may ask you to remove your content from the services if it violates this agreement or the law. Failure to comply may result in loss of access to, or cancellation of, the services or your Microsoft account. Additionally, Microsoft may remove your content without asking you if we determine it's in violation of this agreement or the law, or if we receive a notice of intellectual property infringement from a third party."
I don't see this as anything intrusive at all to be honest. All I'm seeing here is Microsoft covering themselves and rightfully so.
But most of all... Will Microsoft disclose my personal information to others? You know; like Google basically does; using my information to allow others to target me with specific advertising. Well, they won't:
"You consent and agree that Microsoft may access, disclose, or preserve information associated with your use of the services, including (without limitation) your personal information and content, or information that Microsoft acquires about you through your use of the services (such as IP address or other third-party information) when Microsoft forms a good faith belief that doing so is necessary (a) to comply with applicable law or to respond to legal process from competent authorities; (b) to enforce this agreement or protect the rights or property of Microsoft or our customers; or (c) to help prevent a loss of life or serious physical injury to anyone."
I actually applaud this. Especially section (c) is something I can fully support and I think it shows a little bit of the reasoning behind their policies that they explicitly included this section. They could have simply limited themselves with "We'll follow the law" but instead decide to go the extra mileage.
So quite frankly; I don't think its fair to compare these policies to those of Google.