If it was prohibiting all open source it would also prohibit Microsoft's own open source licenses.
Case in point... Apps for Microsoft's app store are primarily written using Silverlight. On Microsoft's codeplex site, there are toolkits for both Silverlight and WP7 that most developers take advantage of. Those toolkits and libraries use either Microsoft's open source licenses or other comparable licenses like BSD and MIT licenses. This requirement would effectively block a large majority of the apps already in the app store.
In other words, Microsoft is targeting licenses like GPL v3 and not every open source license.