Ballmer has a good point: currently millions of phones are sold with MS software. Many of those phones have most of and even more features than the iPhone.
Are they beautiful? Are they elegant? Has the UI been scrutinized to reduce the number of clicks to do common functions. How many of those MS running phones are locked down by the carriers? Or the features are tightly tied into a revenue stream for the carrier making the features a pain to use?
Ballmer gave a feature list comparison. Jobs offers a user experience comparison.
A few quotes from a review
of the Q phone Ballmer mentioned I pulled up from Google:
"discomfort is caused by the angular edges and a large ridge designed to protect the scroll wheel. The width of the phone forces you to grip it a bit more tightly and really dig in to these hard edges."
"No matter how much we used the Q, we never were able to type accurately with the keyboard for more than a few words at a time."
"The keyboard layout leaves much to be desired. Other than letter keys, nothing is where you expect it to be"
"As a warning it is very easy to activate the speakerphone mode, even when not in a call by pressing the voice dial key for a second. This can easily happen in your pocket without you knowing and can cause a bit of shock and a great deal of discomfort if you hold the phone up to your ear in this mode."
"The home screen of the Q is packed with so much data by default that you actually have to scroll down to see it all. However there is no scroll bar, arrow or any other sign to indicate you can or should scroll down to see more."
"The new message window begins with addressing the message, which is far more difficult than on the Pocket PC. Typing a name into the address field does not accomplish anything, it is not matched with the contact list. Instead you have to press select on the D-pad to be taken to the contact list, where typing a name will filter the entries. Pressing select again will add a recipient to your message. Entering the beginning of a phone number or email address instead of a name in the address field in hopes of the Q auto-completing the address does not work either."
"Unfortunately no relevant information about the shot you are taking is displayed, so it is difficult to know what the camera is capable of and what your current settings are. "
The review also had a number of nice things to say about the phone, and I'm sure the iPhone will have issues; but this is the example Ballmer pulled out of his hat to compare with the iPhone, I believe a few of those concerns above were directly addressed by Steve J. in the keynote.