There is no other "something" to be done to save Nokia. It brings benefit to Microsoft, and it saves Nokia.
1. Develop a fantastic new platform/product/ecosystem that people wanted to buy (using local talent)
2. Support Android on some or most of their devices
3. Reinvigorate their current platform somehow (new features, reduced costs, new apps, developer incentives, etc)
Keep in mind, MS's product in this space is widely considered less than successful. The only thing MS has going for it is cash in the bank, but so do Google and Apple and Nokia.
How many people walk into the store thinking "I'd like to sign up to buy a Windows phone"? How is this going to benefit Nokia again?
W7P is currently not a market hit. As you mention, Microsoft has cash in the bank, and they are not going to give up (see xbox, search, etc). Given a couple generations of W7P development, W7P will look like Android today (read: usable).
Nokia may eventually be relegated to a commodity hardware maker, but they do benefit by adopting a modern, competitive mobile OS (as opposed to their current in house options). The worst case for Nokia may look like Motorola. (In that Motorola was bleeding post-RAZR, adopted Android, and are now doing fine even though they don't create the OS.)
Nokia should have bought Palm (and similarly pivoted to it and away from the existing awful tech).
RE point 1 and 3, Nokia did this already - it was supposed to be Maemo. They didn't go anywhere with it. They turned it into Meego. We know what happened with. Nokia failed MISERABLY in this regard.
Nevermind that WP7 isn't competing against iOS 1.0. It's competing against iOS 4.3, and in the fall, iOS 5.0.