That is not quite correct (and was incorrectly stated on the Microsoft press release):

Moodle 1.x is GPLv2 *or later*.
Moodle 2.x is GPLv3 *or later*.

The plugin is totally compatible for users to use, the only problem is for distributing the current MS plugin with Moodle 2.x

Good summary, but some more clarification (I'm the founder of Moodle):

- The MS plugin can not be distributed with the upcoming Moodle 2.0 or later (GPLv3+).
- The MS plugin CAN be distributed with the current Moodle 1.9 (GPLv2+)
- The MS plugin CAN be downloaded separately and used with any version of Moodle.

One can't really blame MS here - this is actually a problem caused by incompatible messiness of GPL versions. MS have told me that they would of course love to have their module in core Moodle 2.0, and they will work on releasing this under GPLv3 at a later date (big companies have big legal teams that take a long time). I imagine the patent things in GPLv3 will need a lot of careful examination.

Moodle is a large GPL PHP project that has benefited from Microsoft funding. Last year Microsoft paid Moodle core developers to add MS SQL Server support in Moodle to let it work better in institutions used to Microsoft platforms.

      http://moodle.org/mod/forum/discuss.php?d=57989

The developers actually used the chance to revamp their whole database abstraction layer, effectively adding support for a number of other commercial databases as well (Oracle, Interbase etc). ;-)

Microsoft also developed Sharepoint web parts for Moodle, and an extension for Word that allows teachers to publish straight into Moodle.

      http://www.codeplex.com/Moodle2003WP

Yes, it's true there was a business case for Microsoft, because some very high profile institutions can now switch to using MS SQL, but I think overall it was a win-win for all concerned.