This is a comprehensively incorrect explanation of copyright and contract law.

> If Id had paid Microsoft to do the port, it would automatically be work-for-hire and the copyrights would belong to Id, unless the contract said otherwise.

Nope, not true. Work by non employees is only work-for-hire if it falls into one of the qualifying categories and the contract explicitly says that it is work-for-hire.

It's not automatically work-for-hire; that has to be stipulated in the contract. Recently there was a lawsuit about this involving, of all things, Sonic the Hedgehog. An artist and writer named Ken Penders, working for Archie Comics on Sonic comic books, sued his former employer claiming ownership over certain characters created for the comic, most notably those connected to Knuckles the Echidna. Because Archie couldn't prove that Penders's comic work was work for hire (they lost the original contract), they settled out of court in favor of Penders. This ended up losing the Sonic license and had various effects on the Sonic universe. For example, he threatened to sue Paramount over the idea of Knuckles having a father, because Knuckles's Archie Comic universe father was a Penders creation. So rather than depict his father directly for the Knuckles series, they represented him with a puppet in an abstract sequence -- a puppet bearing a suspiciously Penders-like moustache.

It's definitely a topic for a CSI: HN, but I think it's a was most likely a part of a larger agreement between a relatively small shop and a behemoth.