CrunchGear is reporting that Microsoft may have a "Zune Phone" ready by Christmas 2007:
Microsoft Zune Phone In the Works
Some points of interest:
1) My guess: The Zunicator will be a CDMA phone and we will find out that THIS IS THE REAL REASON Verizon passed because Microsoft might have talked to Verizon about exclusive deals.
2) The unit will have an actual tactile keyboard to make the Dvorak/Scoble/Ballmer camps happy
3) The unit will run a Windows Mobile / Zune Hybrid and essentially be like any other high end mobile phone currently on the market except be limited just slightly more by means of DRM.
4) Phone calls will be limited to 3 minutes. (just as Zune beamed songs are limited to 3 days or 3 listens)
5) It will be interesting to see if Microsoft would use Windows Mobile for Smartphones or do what they did to all of their MP3 DRM (by not using the same PlaysForSure System) partners and create an entirely new system ... leaving their design partners in the dust.