Microsoft Zune Phone with Windows Mobile 7: will it happen?

There has been a rumor going around for some time now about a possible Zune Phone from Microsoft, and now these rumors have resurfaced once again following the news of a new Zune HD media player. If there was to be a Zune Phone, then you can bet that it will come with Windows Mobile 7, but will it ever happen.

Now is a better time than any for Microsoft to enter the smartphone market, as sales of these handsets are still strong. Microsoft needs to act fast if they want a piece of the action as the Palm Pre is to launch soon and Apple are rumored to have three new models this year.

The Zune already has a battle on its hands, it used to compete with just the Apple iPod, but now it has to take on the iPod Touch as well. The problem with a Zune phone is Microsoft might not be up to the challenge of taking on the smartphone king, the Apple iPhone.