Ya. Im sure MS's legad dept wont let this happen without taking a long hard look into there rights. A lot of people sign non-comete agreements when working at studio's. I dont know if MS is one of them. I had to sign one when I worked at Interplay. Also, they cant use any code from MSFS, and quite frankly, there is no engine out there that can simulate a WORLD. The big ones, like Crysis, Unreal, and Quake can only simulate a small pacific island at best, and thats not even with real world physics, gauges, and everything needed just to fly an aircraft.
Trust me. As someone who personally knows how hard it is to try and get a sim to market, they have a long hard road ahead of them. I personally wish them the best of luck. As I always say, with compatition, the customer always wins.