has a chance
Having used iphone and android I think MS has a good opportunity if they play it right.
The iphone is very easy for average users to use. Apple feed updates to you which are simple to install which fix performance issues or bugs. Installing apps is simple. But its expensive and locked down so Jobs will pick your pocket for 30% of everything you buy for it.
Android devices are far cheaper and arguably as good if you have a high end one. But rather than install a generic Andoid package, each vendor often ads their own interface tweaks and hardcodes stuff in. I've had one phone bought in Dubai which had an islamic prayer alarm burned into the ROMs. It turned on GPS and played the islamic call to prayer 5 times a day. And no way to disable it or remove it without rooting the phone (average user cannot be expected to do this). Tip: don't buy an HTC android phone in the middle east, anywhere, if you want to remain sane. Also had a Samsung galaxy, known issue with wireless breaking due to some file getting corrupted, no updates or anything from Samsung in over 6 months. With android the only help is self-help, forums, etc.
What MS need to do is focus exclusively on Nokia phones (and better still, buy Nokia), so they can deliver the benefits of iphone (good integration, prompt fixes for issues delivered via updates) without the drawbacks (cost, cannot install apps from other places). Get it running flash and good support for coding apps through .net and it would be a winner.
Much as I would like Android to prevail, having used it you find it's really not ready for the average consumer - ideal for linux geeks, but cannot expect the average user to have to figure out rooting the device to fix the numerous bugs and annoyances which the various phone vendors put in. And the Android store just plain does not work properly. Combine this with no help from Google or your phone vendor and paying a few bucks for a decent OS with decent support seems rather attractive.
The key is whether MS can deliver this...