If you are wondering about why Microsoft settled with Sun, I suggest reading David Kirkpatrick's excellent piece on the deal. In the article, David surmises that the power of the open source movement is really the driver behind the deal.
Open source’s influence is far greater than its current market share in software might suggest. The open-source model increasingly defines what’s possible in technology. What matters now is not where a technology comes from but how it works with everything else. Open-source software can be made to play well with others more readily than any technology we’ve ever seen. Even more than its low price, that’s why companies like it so much—they can modify its guts to their specific requirements.
Right on. This is not a story of free versus paid, but a story of freedom. If you talk to CIOs, you will consistently hear that they favor open systems and architecture, and that they do not want to be a victim of proprietarty vendor lock-in. While Windows still has a larger share of the server pie, what open source is doing is giving the customer choice, which ultimately gives them power, the power to demand interoperability or turn to another non-proprietary solution. Yes, there are other drivers behind the deal but as David points out now Microsoft and Sun can focus efforts to fight a more common enemy, IBM and the open source movement, which threatens their very existence and dependence on proprietary software.