MS announced this shortly after it was revealed that the Wii Dev Kits would be a lot more "reasonable" than those previously available ($2,000 as opposed to $20,000+).
announced, yes, but this has been in the works for a long time as GarageGames already has some of 2d & 3d engines up and running on it. this rumour has been floating around for a while, and they've been dropping hints at doing this since the E3 before launch.
it'll be natively ran C# code at the moment, but being that most of the expensive work is handled in hardware, this shouldn't really negatively affect the way people develop for it. they're still looking into the distribution of these games through their community, but at the moment it's limited to sending the project and resources to friends. i'm sure MS will heavily monitor this for any Devil Dice quality games, as they've handed out lots of free devkits already.
i think it's a really good move. i'm pretty excited to try it, especially the whole XNA thing, which seems to be a lot nicer to use than DirectX in a lot of areas.