Saying "the tablet vision is from MS" is a bit of an overstatement. The party mentioned would have been in 2005. Apple had released the Newton in 1993 (after having worked on it for many years) and refined it over the next 5 years, inspiring a raft of competitors including Palm (whose first product was software for the Newton) and Microsoft. The Apple MessagePad 2000 (released in 1997) had an entirely tap-based interface with no dedicated hardware buttons - the whole interface was whatever you saw on the screen. The initial vision for the Newton was that it would be a tablet OS that could scale to a variety of sizes - "from a post-it pad to a whiteboard" - the actual sizes released were driven by market considerations at the time.

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.