Ok, so I'd assumed that the Zune ran on top of Windows Embedded CE (maybe version 5, maybe version 6), which also supplies the underpinnings for Windows Mobile (version 5 of CE provides underpinning for WM5 and WM6. CE 6 is supposed to underpin Photon). It's all very confusing, this article helps a bit.
In any case, the New Zunes hit and everybody's a atwitter over them. Which, of course, makes people ask about Zune Phones to compete with the iPhone. We already knew that Microsoft is more likely to build a Zune into future versions of Windows Mobile than they are to build a phone into the Zune's OS (thus sayeth the Ballmer). Check out this quote from J Allard, though:
J Allard, the Microsoft (NSDQ: MSFT) executive in charge of Zune, was interviewed by Reuters and one of the questions was: So are there any thoughts about a Zune phone?
“A: (Points to head) Yes. (Points to mouth) No. (Laughs) The thing we are focusing on is that Zune is music first. We think there is a lot of runway first in redefining the music experience with partners. That said, we built it on the same operating system as that phone right there. (Points to Motorola (NYSE: MOT) Q running Windows Mobile) So we have the flexibility to take these in a different direction where our customers, our partners and we are ready.”