I'm not sure I'm following all the drama here. At issue is which product takes the best approach to solve problem X. Mr Ozzie seems to indicate Google's approach is overly complex to solve said problem, and infers that Microsoft's solution solves the problem with an appropriate level of complexity.
Now, I saw the entire Google Wave presentation, and also did some reading up on LiveMesh, and I'm not convinced they solve the same problem and can be compared fairly. LiveMesh appears to be an attempt to move an individual's content into the cloud (and be able to synchronize one's data to/from the cloud from any capable device). Google Wave on the other hand is really an alternate (more modern) approach to communication between users (with "synchronization" being a byproduct).
Let's put it this way. Significant success of Google Wave effectively replaces SMTP/IMAP/POP/etc on the net (existing open standards), and gives communications technologies a much richer feature set. Significant success of LiveMesh means a your data ends up in the cloud with modern methods to be able to access that data agnostically. Granted, things like MS Exchange get moved into the cloud as well, allowing email (or whatever they'd prefer to call your method of communication), but how does that remove our dependence on antiquated technologies like SMTP?
Both have potential for success, but I see no reason why the two can't co-exist. Personally, I'm more excited about Google Wave, just because it replaces a 40 year old, highly abused open communications standard with something modern, and also open. Microsoft can just go suck it if they think I'm going to move all my personal data into a cloud that they own, maintain, and operate.