Maybe not now, but the best case scenario for Nokia (baring some kind of exclusivity deal) is that their phone mojo turns WP7 into a big seller. At which point of course HTC commences making WP7 phones, as does Samsung, Motorola, et al. Which is why I think an exclusive deal is the only way this actually works for Nokia. As it stands, even if they win, they lose.
While I tend to agree with your assessment, it will likely be 'Windows Phone 7 for Nokia' rather than the version we're seeing now. Microsoft have effectively fragmented their own OS. They can also choose to provide less support for the multi-handset version.
A formal agreement is better, since Microsoft can't really be trusted here. It seems that this is presented as Nokia buying time until they can compete, but WP7 is going to be their main solution going forward. Will be interesting to see how this plays out. If only someone better than Balmer was at the helm at Microsoft, I'd actually give this venture a chance.