Either this MS exec was just FUD-ing, or he really doesn't get the benefit of an open mobile platform. Users don't want all their X "experiences" coupled with their decisions about device and carrier (presuming that everything works together as advertised). I want an Android phone because it keep Verizon from limiting functionality as a means of attempting to maximize monthly revenue/subscriber. If the market is big enough, there will be twenty good music apps from which to choose.
What will the carriers do? Probably offer up a suite of open source apps as defaults or sell "space" on the out-of-the-box phone to 3rd party devs who have compelling apps. By selecting Android, carriers have already opted out of the user extortion game, so why would they be worried about a photo "experience"?