Yes, this is Microsoft's entry into the world of internet connected devices
It is using a customised linux kernel as this is designed for low powered chips to be included in things like fridges and washing machines rather than full power computers
A custom Linux kernel enables silicon diversity and innovation.
Yes. Actually, Microsoft has supported Linux for business consumers for some time, so this is not all that big a shift.
When Microsoft CEO Satya Nadella took the job in 2014, one of the first things he did was announce that "Microsoft Loves Linux." Since then, Microsoft has added robust support for Linux in its Azure cloud platform, while letting developers integrate Linux with their copies of Windows 10. In 2015, too, Microsoft developed a much smaller Linux-based technology as part of a larger open-source software package.
You are right to note that in the 2000s, Microsoft tried very hard to crush Linux. But this is ancient history in Silicon Valley terms.
Microsoft has released a Linux-based system before (though not as an "operating system" product): https://www.zdnet.com/article/microsoft-demonstrates-its-linux-based-azure-cloud-switch-operating-system/
Microsoft's Azure system is very Linux friendly and hosts many Linux instances. At one point, Microsoft was the largest contributor to the Linux kernel.
In general, though Microsoft fiercely competed with Linux in the 2000s, it was the GPL (the General Public License) that scared Microsoft the most, particularly its "viral" nature: https://en.wikipedia.org/wiki/Viral_license