I'm not sure about this. The NetFlix application for Windows Mobile only allows you to preview movies. Eventually I imagine NetFlix will enable streaming the entire movie. So maybe this is what the rumor is based on. Considering that Zune devices are based on the core WinMo OS..I have to think it wouldn't be all that difficult to bring this to Zune. Another possiblity, is that the long rumor'd Zune VideoX service is a channel that shows up on Zune/XBox/MC/Windows Mobile devices and offers content from partners like NetFlix. I like this approach because it may streamline the development effort to get content to show up across multiple entertainment platforms.
Speaking of Zune OS, it would be an interesting move, if they release a Zune "Touch" device that was more of a MID type device....somewhere between a music/video focused Zune device and a voice focused Windows Mobile device. It shouldn't rub partners the wrong way because most PocketPC partners have either exited that product category or switched to Windows Mobile. The question is how would a product like this compete with netbooks and who would it be for.
Windows 7 - Gateway Laptop, Windows 7- Gateway Desktop - Dual 22" LCD
Windows 7 Media Center - HTPC homebrew, Dual Tuner
XBox 360, Zune 120 and Windows Home Server - HP MediaSmart (3 TB)