As far as I can tell, the main issue here (ignoring jabs about the NSA, M$, etc.) is the difference between a warrant and a subpoena. US law enforcement would like to have their cake and eat it too, using a novel warrant-subpoena hybrid. With a warrant, law enforcement officers are the ones that search and seize the documents or data outlined in the search warrant. In a subpoena, the party being served is compelled to produce the documents themselves and testify in court.

In this particular case, it seems obvious that a warrant is inapplicable, since US law enforcement officers don't have the authority to seize Microsoft-controlled data located on servers in Ireland. If Microsoft had instead been served with a subpoena, they would be required to hand over any documents that they had access to, regardless of the data's physical location. However, there are strategic advantages (for law enforcement) to favor warrants, since they're much harder to challenge, and that treaty obligations with foreign countries might restrict the kinds of data that can be retrieved from overseas servers.