CrunchGear has some inside info, apparently Microsoft has decided that they're going to go ahead and make a phone version of the Zune media player. I expect that the following will apply: ZunePhone is to iPhone as Zune is to iPod. In other words: decent enough but it won't achieve mass appeal. It's a bit off-topic for this site as the ZunePhone is not going to run Windows Mobile (Which is funny to me - Microsoft's newer divisions like the Xbox and Zune folks seem to not like WinCE much, I hear they tried it for both and then gave up fairly quickly). In any case, expect it to sync up well with the Xbox 360, but don't expect it to be a full-fledged smartphone. Think media phone. Also think that that they'll have a lot of catching up do to.

Frankly, Microsoft has a history of letting stuff leak out to try to either take the wind out of competitors sails or (in this case, I bet) at least make sure that when somebody writes a story about a competitor, they get a brief mention. As in: "The iPhone is really cool, but Microsoft is rumored to be working on a competitor" instead of "The iPhone is really cool."

We’ve just received a sound tip that Microsoft is working on its very own phone to be branded under the Zune moniker. Our tipsters inform us that Microsoft execs are in meetings today hammering out details of the device and developing strategies and timescales for its release.

Read: CrunchGear » Blog Archive » Source: Microsoft Zune Phone In the Works