Microsoft's decision to pay the salaries of several Ruby hackers was akin to a lawyer dating the bassist from a cool local band. Thus, it's sad, but not surprising, to hear about the breakup: With the departure of Jimmy Schementi, Microsoft's Ruby team is now down to one part-time developer.
Keep in mind that Ruby is one of a newish breed of dynamically typed languages much beloved by open source developers and those interested in agile methodologies. It has a whiff of hipness that doesn't necessarily accrue to hopelessly square (but widely used) languages like Visual Basic and Java.
Why was Microsoft paying the salaries of these counterculturalists in the first place? Well, Schementi and his mates were working on IronRuby, an implementation of the Ruby language for Microsoft's .Net framework, which could be integrated into the company's Visual Studio IDE line. It's the sort of synergy between an establishment player and an upstart project that looked good in press releases.
But was it a good fit for either side? You can make the argument that Ruby users aren't natural Microsoft customers, and advances in .Net bring many dynamic language features to C#, which removes much of the incentive to implement Ruby on .Net in the first place. Schementi hints in the blog post announcing his departure that typical large-corporation management issues hindered the nimbleness of the IronRuby team.