Microsoft isn't worried that Palladium will be broken because the security design behind Palladium and the TPCA incorporate use of hardware and application will need Palladium in order to run correctly.  Palladium will still, of course, be able to be broken by intercepting signals from appropriate buses, but this is definitely not a "Break Once Run Everywhere" type of hack that any user can do.        
Even this break won't phase Microsoft because in order for applications to run correctly on a Palladium PC, they have to be verified by Palladium.  Thus, a hacker can hack around Palladium/TPCA to accomplish what--to run his/her pre-Palladium applications?        
The fact that Microsoft's Palladium is a Digital Rights Management system promotes the apocolyptic fear that user/consumer rights, innovation for new technologies, and small tech business will be severely endangered.  While Palladium might be intended to enforce strictly copyright laws, the same technology can be used to prevent the distribution of rebellious, illegal, and radical information.  This distribtuion of "illegal" information is the foundation of the United States of America.  Imagine if the British government developed some sort of paper that when rebellious words were written on it, it could not be sent to and read by another person.  The Founders would have written the Declaration of Independnece, sent it to King George and he would have received a paper full of squares, smiley faces, pi signs, asteriks, pound signs, and other wingdings!        
In addition, new competitors will have to make their applications TPCA-compatible if they want a chance to have their software be widely-used.  Any innovation that does not comply with the TPCA protocol will be dead on arrival.  Innovation will thus not occur as we now know it due to the fact that the TPCA will 1) constrict the areas for innovation and 2) deter creative minds from even attempting new ideas.

I agree with the idea that TPCA will constrict areas for innovation and deter creative minds from even attempting new ideas.  It seems that with TPCA, creativity is no longer an option for the American people since they will not be allowed to create a new application without first getting it through the TPCA protocol.  One of the biggest problems with Palladium is the Digital Rights Management system because the technology that is used to enforce copyright laws can be used in orther ways to control your Internet.

Under Palladium, the Internet goes from being ours to being Microsofts. The very data on our hard drive ceases to be ours because it could self-destruct at any time.  We'll end up paying rent to use our own data!  Palladium is a dream-come-true for Microsoft and Bill Gates because they will finally completely be able to marginalize the work of any competitor who does not choose to be Palladium compliant.  There goes Linux and Open Source, not to mention Apple.

The scariest part of this whole Wingding situation is that Palladium has a strong chance of succeeding and thriving in the near future.  Finally, Microsoft will reach its plan of taking over the way consumers look at software.  If Palladium succeeds, Microsoft will once and for all control all of our software.  Talk about a monopoly...weren't they already sued for this before?

Just remember that Palladium is not about making things better for consumers and users.  It is about removing the ability for the user to decide how his or her computer works and functions.  Microsoft will decide that for you.  Let's hope that this won't happen.

I don't think Microsoft feels the Palladium implementation is fool-proof, and will never be broken, but the feeling is that it is safe enough.  The process of "sealed storage" involves a hardware implementation with a co-processor containing the key.  This key is only known by the coprocessor itself, and the encryption and decryption must take place under the same hardware and software environment in each case.  That is, the operations must be performed on the same machine, running the same operating system kernal.  If decryption is initiated with a new machine, whether competely different or just containing a modified operating system, the process will fail.  The inability to change hardware and software configurations ensures safety for Micorsoft, and potentially, the user.

Matt Loney, in his commentary, suspects the implementation of Palladium as a DRM system may cause large skepticism among consumers.  Digital rights management, a relatively new concept, is still under much debate.  The motives behind copyrights in the first place may be arguably infringed upon with this use of Palladium.  Loney argues that the consumers' fair use privledges may be compromised.  

In Ross Anderson's FAQ, he presents a downside of the implementation of Palladium to be problems with remote censorship.  Making it more difficult to switch to a competitor's product is a possible offspring of this idea.  Offensive writings or pictures may be (unfairly) subject to removal.  This also seems to limit some fair use portions of copyright statutes and general expressional freedoms.

Kyle accurately describes why Microsoft isn't too worried that Palladium will be broken.  If the Palladium security device is broken, it will be isolated to that machine.  The typical user/hacker does not posses the ability/desire to alter both hardware and software components of a system.

Implementing Palladium as a DRM system worries people because it may infringe on a consumer's fair use and it may serve as a "unelected" censor that threatens a person's freedoms.  Kyle addresses both of these points.