I find two things interesting about that blurb,
(1) They are trying to combat piracy in these developing countries
(2) They are trying to combat Linux
This leads to one conclusion, I think: they already have computers. They already must be literate. If they were not, why is piracy such a problem over there? Why would people be downloading/obtaining pirated XP pro, if there was no literacy? Why would Linux need to be 'combatted', if Linux wasn't already there? Keep in mind, MS just did this deal for mostly developing Asian countries.
It just goes to show that Microsoft has absolutely no idea what Linux is all about.

They can't understand. They are a business, and they make and sell a product. Linux is more about an idea, a hobby, a love. They don't understand that if every paid distro out there just fell off the planet, it wouldn't change a thing. They don't get it that if nobody in these countries installed another distro of Linux, it'd only be out new developers........it wouldn't stop the idea of it at all.
It is utterly foolish to offer a neutered system to 'combat' anything.
I dunno........just my two cents on it.
-Todd