Well it's pretty obvious - they want products like Maya, Modo (already has it), SoftImage, ZBrush, Houdini to include this in the future, and they're not going to include GPL stuff in commercial products. LGPL might have been an option though...

I suspect they could have easily found a more FOSS-friendly license which achieves their goals. The exact license depending on the exact goals, but presuming the "normal" GNU GPL isn't appropriate, the GNU LGPL or BSD/MIT licenses might be possibilities.

The Ms-PL, on the other hand, seems to be a license which is gratuitously incompatible with the GPL, simply to be incompatible.

I've seen projects where the README essentially stated "We hate the FSF, so we're using this roughly equivalent and yet incompatible copyleft license to piss them off," but I don't think Pixar are jerks, so I'll put this choice down to simple ignorance.

Seems obvious this has been a conscious choice in order to prevent inclusion into GPL licenced open source software, otherwise why not use a permissive licence like BSD/MIT which would satisfy ALL uses, both in open source and proprietary?

The whole thing which defines MS-PL is that you can take MS-PL licenced code and use it in a proprietary project without supplying source code (like with MIT/BSD), however if you DO supply the source code it must remain under MS-PL (thus viral, unlike MIT/BSD), in other words it was designed to be useful for proprietary projects (which is ground BSD/MIT already cover by being permissive) while preventing it to be used in conjunction with code licenced under GPL by having incompatible terms.

What is wrong with Ms-PL?

The common interpretation is that Ms-PL is intentional designed to work like BSD, but to forbid code to be put under other free and open source licenses.

Ms-PL allows you to distribute derived works freely under any license but only if it is in binary form. If you distribute code in source form, then the license change style and requires that all code to be under the Ms-PL, and only under the Ms-PL. Since practically all free and open source project distribute code in source format, this makes code under Ms-PL incompatible with most projects.

Isn't it incompatible if, and only if, you modify the original? For example, I can make an open source program that uses OpenSubDiv and distribute that open source but I cannot modify OpenSubDiv and distribute the source?

Reading the license text, I do not see any exception for distribution of exact copies. What the license text say's is: if you distribute any portion of the software in source code form, you may do so only under Ms-PL.

Project will use the technology described in the now open patents, but the source code will likely never see any use beyond as a reference manual.

In that case, you could distribute the OSD code under the Ms-PL along with your open-source code.