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The alarm actually plays the most recent song (or podcast, interestingly) that you've played on your Zune.
So what I did last night is selected a song on my Zune that I want to wake up to, then paused that track.
In the morning the ZN9 started playing that song - from where I had paused it.
I believe when that song is done, it will continue playing through whatever playlist you previously had active - although I need to test that.
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