The rules regarding microlights are simply that they must be flown VFR at all times.
What determines VFR minima depends on the pilot's qualifications (and airspace) -
For the basic PPL/NPPL that means always being clear of cloud in sight of the surface and the lowest visibility is 3K (or higher if the airspace requires).
However as is becomming more common these days, the pilot may hold an IR and then for that pilot the minimum visibility is 1500m (higher if airspace requires) and there is no legal requirement to be in sight of the surface.
Thus it is not uncommon for an IR holder in a well equipped microlight to fly 1000ft above a 3000ft overcast top - perfectly legally.
Overall, the IR pilot flying a microlight can't - fly in IMC and can't accept an IFR clearance (cross an airway for example).......but they can use the other licensing privileges that the IR conferrs. (We can only hope for the time when the permit will restrict the aircraft to VMC as opposed to VFR
Thus, unless the twin was so close to the microlight so as to read the ratings on the guy's licence we have to assume that the pilot was operating within the limits of their licence and thus perfectly legal................Which leads me to ask - if it was a C150 that was there would the legality question come to mind?
Microlights do show on radar but very few have transponders. The latest models can happily cruise at similar speeds to a PA28 / C172 for a fraction of the costs!
Regards,
DFC