Just to confirm what aroomofonesown said - western/non-Muslim women do not have to cover their heads in Saudi. Occasionally (very occasionally), you'll be asked/told to by the religious police, but you don't have to.
So on this matter, she absolutely did not break any taboo/tradition or show any disrespect.
I really wish people who don't know anything about a particular culture would not comment. Or that they would look for appropriate information before commenting. What's the point in wading in with your opinion when you don't even know what you're talking about? It just creates more misinformation and division.
You are required to wear an abaya, which she wasn't, but let's face it, I doubt she was pounding the streets of Riyadh in her suit. Driven to a location, meeting a few high level officials, driven back again. Presumably if the Sauds were so offended, they would have refused to meet her.
Even though you are required to wear an abaya, in many malls (the main hang-out place since cinemas etc are banned), you see women walking about with their abaya open, skinny jeans and tight-fitting tops very much visible. Besides which, everyone has TV, no-one is going to be shocked by seeing a non-Muslim woman without an abaya.
I'd imagine the reason they extend the abaya law to non-Muslim women is to make the whole issue easier to police. Since everyone knows Michelle Obama doesn't live in Saudi, it's a total non-issue. Random foreigners walking the streets uncovered is a bit different.
Doesn't mean I agree or disagree with women covering, by the way, I wish they had the choice rather than have it dictated to them.