So if you can stand to read a couple thousand words of speculation in which the most solid information is from "well placed sources", César A. Berardini from Team Xbox is speculating that Microsoft will be releasing a handheld super-gizmo that will be capable of playing games, serving as a GPS device, sharing music, games, and video downloads with the Xbox, perhaps working as a phone, and maybe even using Wi-Max. It's hopeful, at best, but it's not at all implausible.
My question, though, would be why this wouldn't simply be the Zune Phone. (And it could be, since we're talking about wisps and fairies.) As the flashing ad for Need for Speed on the iPhone underneath César's story title reminds, Apple has done very well for itself by making a single do-all device. And if any group within Microsoft could do it, too, it'd be the Entertainment and Devices division.