It’s either going to storm huge or completely fail - nothing in between. The OS itself is seriously stable and WELL worked out. Clean API, easy to use, you can use Visual Studio to develop, fast hardware baseline, etc.
If it succeeds, it’ll be Win Phone 7 and Android duking it out for top place. If it fails, RIM and Microsoft will be down below Android, Symbian, MeeGo and iOS.
Why would it flop? It’s a totally different take on the UI. Android, iOS, Symbian - they’re all like desktop UIs in that you click little icons to launch functionality. You select the function to operate, then go.
Win Phone 7 is different - it’s task-centric. You don’t choose “Facebook” or “phone book” - you browse your contacts and then decide what you want to do. So it’s a data-rather-than-process-centric approach.
It takes some getting used to, but it makes sense for a LOT of what people use smartphones for. It just remains to be seen if the public is willing to make the conceptual switch...
IMHO, the key will be getting the developers on board. People will adapt to the UI if it gets them the apps they want.