Team Xbox is reporting that Microsoft is in the final design stages of a new digital entertainment handheld, one that would feature Live Anywhere and blur the lines between the Xbox 360 and Zune.
We've emailed Microsoft for comment and will update once they reply.
The device, codenamed xYz, is said to offer both gaming and media playback as well as internet connectivity, but no phone.
"Although the Microsoft handheld is definitely a converged device, this is not a Zune Phone." The source added: "Microsoft won't compete with its Windows Mobile customers."
Rumours of Microsoft expanding their Zune device to be more competitive with the iPhone and portable gaming devices have been circling for quite awhile. And Microsoft is certainly still working on Live Anywhere.
Maybe this is the hold up? It would certainly give Microsoft something else to talk about at E3 later this month.