In an announcement today on the jQuery blog, Scott Guthrie's blog and Scott Hanselman's blog, the jQuery library would be distributed AS IS with Visual Studio 2008 SP1 and the free Express editions. The aim is to extend ASP .NET AJAX support and generally make life easier for MS developers. Microsoft would also be contributing tests and patches to the jQuery core, but would not be submitting features etc.
This is a massive boost for a framework that won me and my company over a long time ago. jQuery now has backing from the biggest names in IT and will benefit immensely from the additional support.