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To prepare for the WP7 smartphone launch, Microsoft released free versions of development tools Visual Studio 2010, Silverlight 4 and Expression Blend 4 to help developers build apps for the new mobile devices. While the phones themselves are definitely not free, there are numerous examples of Microsoft offering free development tools. The main .Net Framework and related Silverlight platform are free, and Microsoft offers a free "Express" version of Visual Studio.
Microsoft's answer to VMware, the Hyper-V server virtualization platform is available for free, and also within new versions of Windows Server. Although most customers use Hyper-V to virtualize Windows, Microsoft has submitted source code to the Linux kernel to let Linux run on Microsoft's hypervisor.
Microsoft makes plenty of cash by selling SQL Server, but does offer this free version for "developing and deploying desktop, web, and small server applications." While not as fully-featured as paid versions, the free download offers 10GB of database storage, the same core database engine used in other versions of SQL Server, and is compatible with SQL Server 2008 and the SQL Azure Database cloud service. Separately, Microsoft offers SQL Server Compact, a free database for building mobile, desktop and Web applications.