In my opinion, Bing did not violate Google's TOS because Bing did not use Google's service. The user did, and by installing Bing Toolbar the user gives Bing permission to spy on his/her search (per the Toolbar's TOS, which I presume is carefully written).
I find this bickering between Google and Microsoft amusing. Instead of the concerted public humiliation, a simple private call to Dean, and a public "Yeah, they copied us, and you know why" would suffice.