According to Jim Goldman’s blog on CNBC – Microsoft is planning to give facelift to Zune media player into a new smart phone. Source: http://www.cnbc.com/id/27912313
Then new device falls under codename “Pink” which will combine Zune media player and technology from Danger Inc, which Microsoft purchased back in Feb 2008. Microsoft is planning to unveil the Pink prototype by January for the Consumer Electronics show.

Main question is that - can this new device sustain the competition from Apple’s iPhone or Google’s G1 phone. We only know that Zune did not keep up the competition with iPod. Hopefully Microsoft has learned their lessons from Zune’s failure and also they have to remember that they are entering already crowded Market which is already dominated by Apple, RIM and now Google.