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Have you noticed the “Scroogled” campaign that has spread across the Internet, print newspapers, and billboards? In the campaign, users are warned against getting Scroogled, which we can only assume is a portmanteau of Screwed and Google.
As Microsoft's terms are far more lengthy than Google's, we'll have to stick to the highlights. Most of the terms are standard, such as a no-spamming provision, a right to delete inactive accounts, etc.
What you probably care about, however, is how Microsoft deals with your content, such as emails, files stored in your SkyDrive, photos and videos uploaded, etc. Microsoft claims no ownership of such content, except content that was originally theirs (such as Microsoft-provided clip-art that you use in a document).
You determine who can access your data. If you choose to share something publicly, obviously, anyone can have access. Microsoft will also use automated means to detect spam and malware, meaning their robots will scan your data, much like Google. The sole difference here is the use of the scanned data for advertisements, which for some people, is a big deal.
A big note -- if you use a service that has a voice input feature, Microsoft can record and collect your voice in order to provide that service to you and for the sake of improving Microsoft's products and services. They do explicitly limit it to these purposes, so don't expect your recorded voice to end up in commercials.
Another interesting provision addresses removal of your content: Microsoft will do so if it violates the law, including the Digital Millennium Copyright Act. This seems reasonable, and better than Apple's recent practices (barely legal is legal, Apple!)
There are a lot of other boilerplate terms that deal with paid products, arbitration, and remedies in case of a dispute with Microsoft. They are worth looking at, especially if you are a paid customer, but none seem especially heinous.
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.