He is just trying to publicly discredit the competition. If you actually think Microsoft is ignoring Android internally, then you are very mistaken. He was asked a question about it and answered it. His only realistic options were to do what he did and talk about it in a negative sense or politely refuse the question. What else would you expect him to say? He's not going to legitimize a competitors product, especially this early in Android's life cycle.
Sure he's trying to publicly discredit them, but the point is he's doing a terrible job of it. By saying things that are obviously false, he discredits himself and Microsoft. Here's a realistic option you didn't mention: _reposition the competition_.
For example, he could say, "We've had a look, and it certainly has its niche, but ultimately it's just another Google Labs experiment in Perpetual Beta. Anybody remember ___ or ___ or ___ (he names some Google Labs has-beens), experiments that didn't turn into anything?
We'll have more to say when they release a version with fewer bugs and rough corners in a year or two."
Then he smiles and shuts up, refusing to say exactly what the bugs and rough corners are. This is a lot more believable, and it positions the phone as an experiment. That would be close enough to the truth to raise some doubts. And even fans might be reminded to wait for a faster, cheaper, better version down the road, which would undermine their sales.
Or he could reposition the phone as being hard-to-use, which some of his market believes is the case about Linux. Or "incompatible." Or any of half a dozen reasonable quasi-objections that spread Uncertainty and Doubt. But a bald-faced dismissal runs smack against reality.
He also dismissed iPhone initially and didn't understand why people would buy it. How can the CEO of one of the world's most well-known technology companies be so completely clueless about technology?
After audio and video of him hooting, howling and above all sweating profusely to the sounds of Gloria Estefan surfaced on the Internet, perhaps audio/video of his appearances has become restricted.
Android, Chrome, and much of the other cool tech Google builds are not focused on "winning". They are focused on changing the game. It is not about gaining market share percentage-wise, it is about growing the market.
Phones are the primary way a large portion of the world will be introduced to the internet. The more people on the net using Google's products, the more money Google makes. If Android never sells one phone, but Apple and Microsoft have a fire lit under their asses to make better phones, then Android is a success.
if you're going to get talking about a competitor making a big move, never say "i don't understand their strategy" or "they don't have a strategy"
of course they do. and you just look like a schmuck when you tell the world basically that you don't care enough to do some simple research and come up with some pretty common sense conclusions.
if search is your money maker, and mobile is the new vogue, what do you do to get it so that your search is what everyone will be using?
android is a genius solution, google paid mozilla for years for control of search on firefox, then they came to their senses and made chrome. android is simply a leapfrog of a similar mistake. sure they can partner with RIM and Winmo and Symbian and Apple, OR they can make their own platform, innovate its features, open it to attract a huge base of developers and manufacturers, and tie core features to its own products seamlessly.
This says a lot about Microsoft's stance on the phone market as well (we won't innovate unless we can make serious money!).
Edit: I'm not the only one! (http://daringfireball.net/linked/2008/11/06/ballmer-android)