As if two rumored Microsoft handhelds weren’t enough, the latest chatter from Redmond holds that the company is designing a new “digital entertainment handheld” to take on Apple’s iPod Touch and Sony’s PSP.

The news comes from Team Xbox’s César A. Berardini, who says he waited months to corroborate and clear his report with sources in Redmond and Santa Clara. One source referred to the device as “xYz,” alluding to a hybrid of the Xbox and Zune, but said the actual name hadn’t been decided on, to the source’s knowledge.

Before we go any further, let’s get all the Microsoft handheld device rumors out on the table. We know that Microsoft is working on a Zune HD, complete with a touch screen and due in the fall. There’s also talk of an iPhone rival, codenamed “Pink,” that involves collaboration with Verizon. This third device seems to fit in the former category simply because it’s entertainment-related, but Berardini writes that newly reported Pink specs “coincide with the scoop I got.” This suggests in a roundabout way that Pink and this gaming device are one and the same.

Except for one thing: One source said the device doesn’t have and “doesn’t need” access to a phone network. Berardini was also explicitly told that the device is not a “Zune Phone.” He speculates that the device will include WiMax, but who knows.

As for other hardware, the “xYz” reportedly has a WVGA touch screen and “features not found on any handheld on the market,” one source says, but the real kicker is in the software. The story says this device will blur the lines between the Zune, Xbox Live and the “Sky” market — supposedly the code name for a cloud-based mobile App store that Microsoft also hasn’t announced yet. It’ll also apparently compete with Google by integrating Live Search services.

Also interesting is the idea of content that’s transferable between each device, including video games. That’s where I get excited.

There’s obviously a technical disparity between handhelds and home consoles, but the simpler games found on Xbox Live Arcade — Braid and Marble Blast Ultra, for example, or classic ports such as Doom and Sonic the Hedgehog — could easily coexist on both platforms. That idea hasn’t been done since the Sega Nomad, a portable Genesis console that was ahead of its time.

The article gives off a vibe that this is all part of a carefully-planned strategy to pull several of Microsoft’s entertainment services under one umbrella. As an Xbox 360 owner, I see the potential in adding a handheld to the mix, but as always, execution is crucial. So now, we wait and see.

(Oh, and before you get too up in arms, please know that the image above is pure fakery.)

 
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