Windows Phone 7 isn't in as direct competition with iphone as it is android. iPhone is a phone, it's hardware. Android and WP7 are strictly software that appear on a number of devices by a number of manufacturers. iOS will never be sold on a non apple device, but that works in favor of the ecosystem it is set to support. We see microsoft trying to take the best of both worlds, so to speak, on this, by having multiple hardware manufactures and a software ecosystem.
This launch is good news for apple in that it will, if successful, eat away at androids install base. The offerings are compelling, but I hope they have some sort of approval process for applications so as to avoid the minefield that is the android marketplace.