/not a lawyer, just someone that's worked for several big game companies
This is standard in large development companies I've been at, easily excepted / nulled, and as someone that's worked at both EA and Microsoft, is not nearly as draconian as it can imply. I remember when we (Westwood) were purchased by EA and a lot of us were incensed at the very idea of this as well, because we all read the contracts put in front of us. Many of us simply listed the stuff we do in our spare time and it was all excepted from our employment contracts with EA.
As to MS, they have a very open "moonlighting" policy, actually. I can develop games / software on my own that isn't in competition with my work titles, write whatever novel / fiction / book, or make a TV series and it wouldn't be considered MS property. If I used or wanted to use a Microsoft owned IP for something, then it's owned by MS and I'd need to get specific permission or negotiate license the rights to it for an independent work regardless. If I'm developing on MS owned equipment (i.e. using my work PC or laptop or whatever) or with MS-owned software, then there could be issues, I suppose? I've never seen that come up nor really thought about using work resources for personal projects.
If I'm directly competing with my job in terms of what I'm making, then yes, that's an issue. But that's an obvious one.
Generally anyone I know that does side / other work simply says to the company "hey, I do <this> other thing" and the company has said "OK, no problem." It simply needs to be disclosed / documented.
This is just my experience, obviously. If you want to debate the morality of including or asking for things like this in a contract in the first place, that's fine. I think a lot of people don't realize that you can negotiate these things. Many just accept what's put in front of them for work contracts (or don't read them), which isn't the point of a contract - both parties should go forwards happy.