The question is who does the copyright belong to in this repository. It is both original author and Microsoft (because they took authors code and modified it). So the License file should mention both.
I am not convinced that the main LICENSE file should mention both. I feel like somewhere, in the project, there should be a copy of the original license.
When you depend on a third-party, you don't add their copyright in your main LICENSE file.
In case of deps, the dependency comes with its own LICENSE file.
In this case the code is essentially forked, integrated and intermingled, so that is why it should be in the LICENSE file.
If it was file or two, it would be fine to add a comment pointing to the license file in the repo, if it was a directory, or to copy it verbatim to that file. It all the copied code was in a directory then having it in directory would be fine.
In this case it looks like they took the original code and heavily modified it, so the simplest way to solve it is one LICENSE with both notices.
I don't read anything suggesting that in the MIT licence. I don't see why they couldn't say "the fork came with its own LICENSE file, which we moved in this subfolder, and now the root LICENSE file is the one of our new project".
The question is, "If I look at this repo, who owns the copyright?"
Sure, you could move the original LICENSE into a directory. Still, if the files are intermingled, you should have a prominent notice that says, " Hey, these files have mixed copyright ownership."
