According to this, Microsoft has decided to go ahead and put WinFS out there. The file system is intended to make searching and keeping track of documents a cinch with instant search results through constantly updated indexing. The thing is, Google Desktop Search achieves these quick results already.
Apparently the Desktop Search program made so many people happy that Microsoft wants to include it on their new OS, Windows Vista, so that they have more presence than Google, when customers make the move to Windows Vista from Windows XP.
Up until Google came up with the Desktop Search Sidebar, I thought Microsoft had given up on releasing WinFS with the new OS, but it seems that having competition brought their productivity up a notch. This is just another of many reasons to cheer for the brilliant team at Google!