Sure, Microsoft employees use open source!
Microsoft doesn't discourage employees from using open source. They do ask that we are always careful about conforming to the licensing conditions that apply to a particular product, regardless of it being commercial or open source software.
I personally know many developers who use things like VIM and Emacs as their primary editor. As a matter of fact, I would say that the vast majority of software developers at Microsoft that I know use at least some open source tools in their daily job.
As well, as long as their activities don't conflict with their job at Microsoft, the policies for working on projects (open source or otherwise) are quite permissive.
And if that wasn't enough, the vast majority of teams who ship products with installers use WiX to build their MSI installer. (WiX is an open source tool for creating MSI installers -- run by an MS employee in his spare time)
Garrett