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It seems to me MS already has this new product - it's called Windows Mobile. If MS would quit neutering the included applications and partner with a creative vendor, such as Tapwave WM could easily be this ultimate device they think is an iPod killer.
Many of us have been asking for:
a) WM device with 40 - 60 GB built in storage (like the iPod)
b) WM device built for gaming like the POS tapwave
c) WM device with easy to use built in mobile media experience (MS seems to worried about DRM issues to actually deliver here).
The problem is that almost all of MS's WM vendors are Beige Box PC manufacturers who are unable to think outside the box and truly capitalize on the core OS and offer something unique and different. All a manufacturer needs to do is quite trying to make a PDA and make this device. Sure it can include the Office and email apps, but the device does not need to be centered around those items. HP's lame attempt at "media centric devices" a couple years ago doesn't count because they failed to deliver on both he hardware and software fronts.
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