I agree with you up until the point where the person owning the product of your hack is Microsoft. If the result was FOSS, that would be different.

I think they only will get the license to use it without paying any royalty. You still own the product, no?

Edit: And the license is not exclusive either. This will in a way give validation to your algorithm opening more doors (if you really want to make money).

You wouldn't own their changes to it. I.e. they take what you gave them, build on it, and now they own it and not you. I imagine they are looking for a novel idea that they can own for $10k and then they will implement into Office "the Microsoft way" for about $500k+.