I suspect the company was immediately inundated with "helpful" legal advice when this went to press.
While everyone at HN (and probably the Plurk founders) would settle and go back to writing tech, suing Microsoft is every trial lawyer's dream. I think it's only fair for Microsoft to settle since they did have the service up for a few days but a full lawsuit is clearly OTL.
That said, I'm sure both companies will come out unscathed. The one group I see being hurt by this incident are the Chinese contractors. There were a large number of posts here and on /. stereotyping Chinese hackers as cheaters immediately after this incident.
Really, people, think about what you're saying.