If it was a Mexican _partner_ you'd be right. If it's a Mexican _subsidiary_ you are wrong.
A "subsidiary" is an owned asset. If you own an asset and it was in Brunei and you are here before the court, the court can order you to surrender that asset because you onw it and you are subject to the law where you are.
I don't have to subpoena you in Brunei if I've got you here.
Your only defense is if Mexican law makes it _illegal_ for you to move or copy the asset. In that case you'd have the "the court cannot require me to break the law" defense, which is not the same as the "it's far away" defense Microsoft is attempting.
For instance, lets say Fidelity (a french company) was required, in French court, to produce my financial records for the purpose of auditing Fidelity for alleged misconduct. And let's say Fidelity didn't want to do so. They could resist the production order under various U.S. laws such as HIPPA if my records incidentally contained medical information.
Likewise, if the E.U. privacy regulations covered some or all of these documents then Microsoft _could_ _have_ argued _that_ against the production order. Same for things like Attourney Client Privilege and any number of other things. I work for a company in the U.S. that is a wholly owned subsidiary of a brittish company. But the brittish crown and court cannot successfully supponea any of our non finincial documents because we do defense work and so U.S. law would prevent the export of that material. But the money stuff is fair game.
So too for paper documents. The "that would be illegal" defense cuts very fine. If the documents were in Afghanistan, and printed on pure marijuana leaf, then you could argue against shipping the original documents here because marijuana is illegal here. But the court could then require you to photocopy or fax the documents here on a more legal paper.
Now people have been talking "warrant" vs "subpoena" and I don't actually know for sure which thing is happening. A demand for surrender (subpoena) is different than a warrant to enter and search. This sounds like a subpoena not a warrant, as a warrant woudln't be served to Microsoft here, it would be processed by the foreign government and would be served _there_ by local law enforcement.
Given all that, "the old paper courts" are no different than the current paper courts. The "on a computer" bit is immaterial.
If Microsoft controls the documents personally, or through an agent, and a "subsidiary" is a kind of agent with lots of legal precident, the documents are fair game unless an actual law in the other jurisdiction says they are not. Paper or not.
The question is one of control not format of storage.