Quoting from the Microsoft official announcement:
Today at VMworld 2007, Microsoft Corp. and Citrix Systems Inc. announced that they have strengthened their longtime integration alliance in the desktop and application delivery market by standardizing on the Microsoft Virtual Hard Disk (VHD) format as a common runtime environment for both virtualized operating systems and applications. This collaboration will result in future versions of Citrix’s Desktop Server and virtual application solutions adopting the Microsoft VHD format. At the same time, Microsoft plans to adapt a future version of Microsoft SoftGrid Application Virtualization for both the desktop and Terminal Services to the VHD format. Microsoft and Citrix will also collaborate on emerging virtualization technologies and virtual infrastructure management tools to help ensure interoperability and simplified administration for end users…
The move itself anyway seems a real waste of energies considering both Microsoft and XenSource (then Citrix is included) are working with VMware and major OEMs to develop a common virtual machines format called OVF. But the announcement further clarifies how Microsoft will use its long term partnership with Citrix to contrast VMware until codename Viridian release.
The real question is: what will happen between these partners after Viridian launch?