This news report is correct, the Microsoft Research Silicon Valley center has been cut. The New York lab has not been directly affected although obviously cross-lab collaborations are impacted, and we sympathize deeply with those involved. Most of the rest of MSR is not directly affected.
I’m not privy to the rationale behind the decision, but in my opinion there are some very strong people in the various groups (Algorithms, Architecture, Distributed Systems, Privacy, Software tools, Web Search), and I expect offers have started raining on them. In my experience, this is harrowing in the short term, yet I know that most of my previous colleagues ended up happier after the troubles hit Yahoo! Research 2 1/2 years ago.