A large factor in the push for C# was that MS was sued by Sun for their not-totally-compliant Java dialect, Visual J++, and had to drop it as part of a settlement.
They also had Visual J# which ran on .NET, allowing Visual J++ and Java programs to target that platform.
There is also a non-Microsoft open source implementation of Java on top of .NET, IKVM.NET - I was sad to see it die when its original developer lost interest (although I just learnt it has since been revived by others)
They also had Visual J# which ran on .NET, allowing Visual J++ and Java programs to target that platform.