Here is an update. Apparently things may not be as bad as they first seemed. http://www.zdnet.com/zdnn/stories/news/0
Here is a snippet:
Schmidt told the Times his staff first noticed the problem on Oct. 17, when they noticed new accounts "being created that did not match our normal audit logs." Schmidt and his staff then monitored the intruder for two days as he or she created new accounts with varying degrees of access to the network. It was during that time, Microsoft said, that the intruder came across the source code for the computer program under development. Microsoft said it was not part of the company's core products.