Microsoft clearly would like to garner market share in the embedded world and sees open source as its primary competitor. In that assessment Microsoft is right: The embedded market has moved toward open source for many reasons. Advancements in Linux and FreeBSD are available almost immediately to developers of embedded software. And the minimum footprint of an open-source OS is not only small but completely developer-controlled.
Many of these benefits could be gained in an all-Microsoft embedded world too, except where licensing practices come into play. In the embedded open-source world, some of your changes do not have to be given back to the community. Contrast this with Microsoft's licensing plan: After six months your changes may become the vendor's property.
The requirement to give competitive enhancements to Microsoft--which can then sell them to your rivals or meld them into the OS--will not convince embedded developers to move to Windows. Having the source code for Windows CE is a positive thing for developers, but having to give up their enhancements negates any pluses.
Who gains? Microsoft. Every developer agreeing to this licensing scheme will be making Microsoft's embedded OS better but with no guaranteed compensation. So don't count on this plan increasing Microsoft's embedded market share and don't invest heavily in the companies going along with it. After all, anything they do to differentiate themselves from the competition may be given to the competition, source code and all, shortly after they write it.