I'm not exactly sure what Ballmer is hinting at, but it reminds me of the slip Bill Gates made recently in prematurely announcing Windows 7. Windows Cloud, which is a name that Ballmer seems to have made up on the spot, will use geo-replication techniques (a way to replicate data across many physical servers in different locations) and compete directly, it seems, with Amazon EC2 and Google App Engine.
Okay, but are they shooting their own foot? I've mentioned this analogy before, but it reminds me again of the Osborne laptop. The company famously announced a successor to their debut laptop which killed sales for the current model. Any company still hanging on the fence about Windows might decide to wait longer and see how this whole cloud infrastructure plays out. Granted, they may be waiting a long time. There is no release date for either Windows Cloud or Windows 7, and for all we know, they could be the same exact thing (Windows 7 supposedly has cloud-like functionality).
What we are really witnessing here is the transformation of an industry, and Microsoft is trying to play catch-up with everyone else. They have a corner on server software, productivity software, and the desktop OS but are not clear market leaders in the cloud. That distinction belongs to Amazon, Google, and companies like 3Tera.
Cutting through all of the clutter: Microsoft is so busy trying to keep track of the cloud developments that they have forgotten all about proper marketing techniques.
It's confusing, because there is no such thing as a cloud OS anymore than there is such a thing as a cloud, you can't wrap your head around it - it is intentionally vague. The cloud is a theory, a concept - it is purposefully nebulous because you are not supposed to care where the data is stored. And, using the name Windows do longer makes sense - how can a back-end SOA have any windows? If anything, the company will provide the infrastructure that enables the cloud, and that allows end-users and companies to run Web apps, but the move to that model is a move away from Windows, not a move toward it. In the end, Windows Cloud is a name that is almost meaningless at this point.