I was just reading that, as I feared, the tens of thousands of Windows Mobile applications currently available will be useless on WP7. In fact, current phones won't even be able to handle the new operating system so it's a brand new start for Microsoft.
Microsoft has made some moves that put them into a position to continue to be competitive in this market. They've created the Microsoft Marketplace (which I'm not even sure how to access - or if I even can) to compete with the App Store and have brought Zune functionality to the operating system to compete with the media functions of the iPhone (come on, we all know that's the phone to beat).
The Zune marketplace and social aspects are already in place and they're not too bad. It should be easy to plug the phone into that environment. What's going to hurt Microsoft is if they have problems with access to the Marketplace, if they carry over those stupid Microsoft Points that don't relate to any value in the real world and if they don't have a ginormous amount of applications available out of the gate. In other words, if they handle the phone store like they've handled the Zune HD markeplace, they're dead in the phone market. They're on good track if they don't f#@k it up.