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At the IAB conference in Europe, Microsoft announced that they would be supporting both the H.264 video codec and the AAC audio codec in a future version of Silverlight. Up until now, Microsoft has focused on VC-1 which powers all of Windows media. One of the differentiators of Flash was that the latest release of Flash Player 9 supported H.264 and AAC which are becoming something of a standard in the video industry. Apple heavily relies on H.264 and AAC to power it’s rich media offerings.
Microsoft embracing H.264 ahead of it's own VC-1 codec, due to industry pressure no doubt