You set up a product development environment for microservices with varying approaches and tradeoffs, including spinning up the full system locally, in cloud, routing cloud services to a laptop, or making local code available in a remote cluster. Each option has its pros and cons, such as fast local development but potential complexity in setting up resources, slower development due to cloud push, realistic environments with pay for additional resources, and simple setup but shared staging environment limitations. The choice of approach depends on the specific needs and constraints of your project, and options like Telepresence offer solutions to simplify the process.