They can have some success with this regardless of quality a couple of ways. One is by simply undercutting photoshop. Photoshop is a very expensive tool, and there is a market there in the consumer segment for people who have digital cameras and want to play a little bit just cant justify the cost for a pro-level product.
Microsoft could also "cheat" by putting a "lite" version in windows for free and having an upsell.
However, with all of that said, Photoshop has remained the king despite things like Fireworks taking strong runs at it. It is a powerful tool that has a legion of designers who are very familiar with it. The ONLY way you culd get many of them to move over would be to provide a skin for the interface that provided all of the same tools and operate in the exact same manner as Photoshop, plus adding some features and speed. I'm not sure it's possible to do it by adding features alone and forcing designers to otherwise learn a new tool from the ground up.
Also consider that a large percentage of designers are Mac users. Adobe started as a Mac development company and their Mac expertise is strong. Microsoft ports to the Mac, even when they attempt it, are usually poor. They also have resistence from the user community as Bill is considered "the enemy".
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