was going to make a similar comment but mention that i can see this as an advantage over google and amazon clouds. they can just offer a solid editor with their offering now, making it easier to develop on their cloud.
I think this development is especially dangerous with how Microsoft is positioned with Github. They already own where a huge percentage of open-source code is hosted. If they also come to own the defacto place that code is compiled and executed, that would give them a huge amount of power in the industry.
If you're not in control of the hardware your code is compiled and executed on, someone else can place limits on what works and what doesn't. Who's to say Microsoft wouldn't use that to benefit Azure and Windows to the detriment of competitors, consumers, and developers.
As an additional bit of trivia, it seems that Erich Gamma (of GoF patterns fame) had a significant hand in the development of Monaco [2]. There are a number of videos where he takes Scott Hanselman through the tech, back in 2014.
[1] https://github.com/Microsoft/monaco-editor [2] https://en.wikipedia.org/wiki/Erich_Gamma