So Microsoft's efforts might possibly have given Apple the kick in the pants it needed to try AGAIN at a tablet OS at that specific time, but the reason they could do it so quickly and effectively once the decision was made is that Apple had already iterated through the design issues and had stuff along those lines already working in the labs.
Also, Jobs's 50th birthday party would have been in 2005, but the "Project Purple" team that worked in earnest to release iPhone was formed in 2004. And the iPhone took three years to develop (as dated from the formation of that team), not 6 months. So I don't think this story really works on any level. Maybe Steve remembered it wrong - it's more likely he was sitting on the knowledge of what his team had already done in secret and it was killing him not to say anything about it, making the moment especially memorable.
"One of the people who was building Microsoft's tablet was friendly with Jobs' wife, Laurene Powell. He asked Jobs and Powell to come to his fiftieth birthday party."
"Lamborghini was fond of the Ferraris, but considered them too noisy and rough to be proper road cars, likening them to repurposed track cars.[20] When Lamborghini discovered that the clutch on his Ferrari was broken, and actually was the same clutch that he used on his tractors, Lamborghini went to Ferrari and asked for a better replacement. Ferrari responded, saying that he was just a tractor maker, and could not know anything about sports cars. Lamborghini decided to pursue an automobile manufacturing venture with the goal of bringing to life his vision of a perfect grand tourer."