I would highly recommend you reading this article in The New York Times which explains in detail the different dimensions of the cold war going on between Microsoft and Google.
Both are loaded with cash and both trying to venture into each others space. While Microsoft is trying to make it big in Search and Advertising (but still without success), Google is attacking right in the heart of Microsoft's strong holds - their Operating System (OS) and Office Suite.
Article explains as to who Google is trying to venture in the OS domain by recently announcing the Android platform which directly competes with Windows Mobile OS and how Google Docs may threaten MS-Office.
Article, very informative and gives lot of insight on what the top execs at both the companies might be worried about each other.