Both. Microsoft has always stated they were interested in getting into the search business, so there is no surprise there. The fact that they've released something that is actually good may have spurred Google to make their announcement before having something to actually demonstrate.

I would imagine (as most have) that they are releasing some sort of Google-centric Linux distribution. This would make sense as it doesn't take long to roll your own if you know what you are doing (and I'm pretty sure Google knows how to do this).