This comment shed some light on what they are thinking

Posted Nov 15, 2006 17:59 UTC (Wed) by stevenj (guest, #421)
Parent article: Microsoft seeks input on promise not to sue individuals

Matusow posted a later comment that made it clearer to me what they have in mind:

The individual covenant is for any OSS development, for any project, done in any geography—as long as it is done non-commercially. We want to get the covenant to the point where it is clear that even if the code ends up being used in a commercial sense, the individual who did the work remains covered by the covenant—only the entity that is bringing the code to market commercially is responsible for clearing that product for use (like ANY other commercial entity bringing a product to market).

Of course, this is still useless for FLOSS authors (even if the "covenant" were truly binding on MS, which doesn't seem to be the case). They will graciously permit you to write software that comes with a Microsoft tax, and to thank them because they won't sue you (maybe) for doing them this service.

Thank you, Novell, for participating in this farce.