Inside Mobile Apps is reporting as rumor what Xbox 360 users have wanted for years: the death of Microsoft Points.

Kathleen De Vere’s “source with knowledge of the company’s decision” says Microsoft will phase out its points system by the end of the year, and that the change will affect the Xbox 360, Windows Phones and the Zune Marketplace. Mobile developers are reportedly being warned to plan their downloadable content and in-app purchases around the change in policy. Microsoft, not surprisingly, would not comment.

The current Microsoft points system is ridiculous for two reasons: First, the real-world value of points–$1 per 125 points–is confusing, although Microsoft has insisted it isn’t trying to mislead customers. Second, and more importantly, the points system doesn’t always allow you to buy exactly what you need. You can only purchase points in $5 increments, so you’ll always overspend on cheaper downloadable content, movies or music. (It used to be worse. Until April 2010, Microsoft only sold points in 500 or 1,000 increments, so you’d always overpay on a $5 or $10 game.)

Microsoft has been flirting with the idea of ditching its points system for years. In 2009, when Microsoft introduced full game downloads on the Xbox 360, it allowed users to see the games’ full dollar values, and pay the exact amount. When I asked Michael Wolf, Xbox Live’s senior marketing manager, if this was a sign that Microsoft was moving to direct credit card throughout the system, he said “It’s an indicator that we might, yes.” A year later, Microsoft’s Aaron Greenberg told G4 that dollar-based billing ” is something that we’re looking at.”

Now, I think it might actually happen. Microsoft is trying to turn the Xbox 360 from a game console into a general entertainment hub. If the company wants a broader audience to buy lots of movies and music, and maybe even apps, it can no longer afford to use a payment system that overcharges users and doesn’t make any sense.

 
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Read more: Gaming, Microsoft, Xbox 360