Coming form a background in GIS and working in Web Mapping I am always really interested in closer collaboration between GIS and and Web Mapping. In my mind one provides the great interface and the other the sophisticated spatial analysis. Basically they have different strengths. Recently I have got really tired of the paleo vs neo geography debate. It should be about using the right tool for the job and working to integrating them together. So this is why I am really excited about today’s announcement of the integration between Microsoft Virtual Earth (VE) and ESRI ArcGIS. VE provides great web mapping, data and performance, while ESRI has always provided a strong, advanced GIS platform (which I grew up with!).
There are 2 aspects to the integration:
1 - VE Data in the ESRI ArcGIS ’stack’

Global, detailed VE mapping and imagery can now be used within ESRI ArcGIS software (e.g. ArcMap, ArcGIS Explorer) as a Premium content layer (at a very reasonable price). This provides fantastic background data for ESRI users without the headache of having to maintain your own data store. I wish I had this when I was working with ESRI implementations in Local Government, maintaining our OS Mastermap data store was a nightmare!
You can even use VE maps and imager in ArcGIS Explorer:

Users can preview Virtual Earth street maps, imagery and hybrid map layers at http://resources.esri.com/arcgisonlineservices.
Chris Pendleton has blogged with more detail on this.
2- Using of ArcGIS Server in the Virtual Earth JavaScript API

It is now possible to build a performant VE JavaScript API mapping application which consumes ArcGIS Server services for advanced geoprocessing tasks. So you can use the benefits of a Web Mapping API (e.g. performance, global coverage, high availability) combined with the benefits of ‘true’ GIS (e.g. advanced analysis, local/custom data, mapping rendered on the fly). You can do this with the ESRI ArcGIS JavaScript Extension for Virtual Earth“.
What I love about this is that it gives the best of both worlds!
There are some great examples in the interactive SDK. My favourite is the ‘Message in a bottle app’ in the ‘Work with Geoprocessing tasks’ section. I now know that if you drop a bottle in the ocean off the costs of Namibia it will end up at Cuba 300 days later. Cool!

I messed around with the examples and did this enhanced application for calculating drive time zones.
Chris has a perspective on this.
The full press announcement is here
More blogging on this to follow…
Update 8th August:
Just found this diagram which helps show the architecture:
