Because they ran their numbers and realized they have more to lose by going against Valve than... amicably find a compromise.
A more aggressive approach was tried during the Xbox 360 era with the Games For Windows Live framework and by removing their games from the Steam store. It ended up catastrophically bad and they had to backtrack on both decisions.
The irony of Proton de facto killing any chance for native linux ports of windows games isn't lost to them, either.
MS has been building lots of goodwill with gamers by bringing games to PC and subverting expectations by not being opposed to using game pass on Steam Deck. Suing Valve or trying to shut down Proton/DXVK would instantly burn all that.
Because these lawsuits are costly, a PR nightmare, loosing them is a serious possibility and going around fighting your competition with lawsuits can put you into a bad place with government agencies.
Playing games on linux is not a threat to microsoft. The money they loose on that is miniscule.
