What they claim is true, but is it the entire truth, probably not. I had one of their Engineers read my telemetry data and hop into and rectify an issue on my system when after upgrading from OEM Win10 Home to Retail Win10 Pro the system refused to activate. Turns out something the activation process needed to succeed wasn't running, wasn't starting when it was called by the system, and had the wrong owner and permissions set. So, this data collection was helpful in my particular case.
Microsoft has collected all sorts of data even going back to the Win 2k/XP days, and I always had the working assumption that they'll collect data about anything and everything that installs or executes on their operating systems, with the data being "anonymized" to a point before being placed into some sort of general data pool that is accessible outside of their Engineering groups.
I've always kept financials, etc encrypted and only access those in a non-network connected VM, so, if they are so keen on having access the names of what games I own in my Steam Library, that I name file folders after characters from Tolkien's novels and sort them alphabetically, or what VM software provider I use, more power to them.