> It seems silly now that they'd see WP as a threat at all
It seems silly now partly because they fought it back then. Microsoft had their fare share of blunders, but they would have likely done better if Google did not act -- possibly much better.
> MS released a great yt app for about a week and google changed the T&CS of their API and issued a take down (or maybe even blocked the app) because MS was suddenly in violation, even though their own ios and android apps also were.
That's not what happened. MS's app was always in violation of Google's terms of service, and google indeed blocked them -- but there was no "sudden" violation. MS was using the same API that Google was, except it wasn't a public one -- and MS did not display ads on that app, a condition that Google actively enforced on every 3rd party YT app.
Yes, Google's iOS and Android apps used Google's non-public API, and the iOS app at the time did not display ads (the android one did). So? I do not know what kind of agreement Apple and Google had in place at the time, not was one made public -- it is possible that Apple paid for the no-ad experience, and it is possible that Google forgo iOS ad revenue in return for access to iOS users. Whatever - Microsoft was in no position to demand favorable treatment with respect to YouTube, but they gave it to themselves anyway (and suffered Google's hand as a result). Google never was under an obligation to give all 3rd parties the same API they use themselves.
One should also note that the website version of YouTube was perfectly serviceable on iPhones and Androids at the time, but was horrible on Windows Phone because the MS browser was not implementing neither standards or de-facto standards at the time; if MS invested in a reasonable moble browser (or allowed 3rd party ones), their users would likely have had a reasonable YouTube experience.
Another thing that happened more or less at the same time, which I am sure is intimately related: Microsoft asserted patents to make Google pay to make Exchange protocol available on gmail accounts, and threatening Android manufacturers left and right on infringements. Then, more or less a week after Windows Phone came out, an capitalized on the Exchange protocol (everything else wasn't as well implemented or executed -- but who cares, Gmail, Exchange and outlook supported it), Google announced that "due to Microsoft's licensing fees, users of the free tier of Gmail will no longer get Exchange protocol on a new device" -- meaning that no Windows Phone user could get a proper gmail experience on their phone. Microsoft immediately replied with "no no no, please, have it free for all users", but Google did not change their stance.
Microsoft made the bed, completely on their own.