I think it doesn't matter what it does to the iPad. It isn't about taking the iPad down a notch or two or beating Apple or dominating the tablet market. Apple is the standard reference though so that prompts the response. Directly trying to take on Apple seems silly for MS since they are two different kinds of companies. They should learn their lessons from iPod vs. Zune. At the end of the day a successful Zune media player would have done nothing to help MS out in the long run (iPod sales peaked in 2008 and have been declining ever since).
Microsoft realizes multi-screen (phone, tablet, pc and tv) via the cloud is the way of the future and that future includes touch. They need to be involved in touch with Windows and they need to be on every screen and they need to tie it all together via the cloud. As stated they aren't going to concede any market. All of this actually predates anything Apple and Google have done by a long shot, though MS hasn't had the best implementation of their strategy. It looks like they are finally going after their vision full on now though.
Now that may involve some competition with Apple and Android but they don't have to be a this killer or a that killer. Windows on tablets is a unique offering that nobody else can provide since it is a traditional OS that is rethought for touch and able to operate on tablets. Windows RT is an off shoot of that for low power mobile chips.
Windows 8 is in an entirely unique market in that it is a full pc in tablet form whether from Microsoft or its partners. There will be a certain demand for that regardless of iPad or Android. Windows RT is less clear and will be in more direct competition with iPads and Android tablets. It remains to be seen how this will fare but assuming that apps and programs can be easily ported over from Windows 8 to Windows RT it may provide a compelling and unique market that is able to compete with the other mobile chip based tablets.
Not sure why MS has to take Apple or Android down to be successful. The chances are it will take a certain portion of their sales for people that have been using either iPads or Androids as a compromise waiting for Windows devices. All three can and most likely will co-exist. MS is simply getting their tentacles back into every reach of tech, phones, tablets, pcs, social networking (still need to make some big moves here), search (and here) and the cloud and is now supporting now touch input consistent with modern devices.
None of these areas are really new to MS but they are certainly making an effort to tie it all together through Windows 8 so they can "contest" every piece. They have been in a shambles for a while and need to bring it all back together. It will be interesting to see what they try and do with web browsers, search and social once they have a wide spread Windows ecosystem since they still haven't shown any competency in advancing those areas of their strategy.
I am not for a return to the MS of the 90's and think Google/Android has been great in bringing the alternative Linux never could. I do look forward to three goliaths of tech pushing things forward on all fronts though. This sort of competition is great for consumers. Without iPads and Androids maybe there never is a a Surface tablet or any Windows tablet of quality, only more "tablet pcs" that never really live up to the promise of mobile computing.
JP