The ZuneHD looks like a lovely catchup to the original iPod touch—you know, before apps allowed it to be so much more—except for one thing. That damn browser. It's not just they're basing it off hellacious and reviled IE—it's that it's not WebKit-based.
There simply isn't a better mobile browser than WebKit right now. It powers the internet in the iPhone, Android, Symbian S60 and Palm Pre, and destroyed all comers in our Battlemodo. It's fast, it's competent and most importantly from a development perspective, it's open source. Meaning Microsoft could adopt it for its mobile devices with (relatively) little shame (okay, maybe a lot of shame) and it's ready to go right now, meaning there's no wasting time building a new engine just to attempt to play catchup to a browser that handily delivers the best mobile internet experience right now across multiple platforms.
Mozilla's Fennec could become a contender to the throne, true, but it's still far from final. Opera and Skyfire are interesting and good, but they're both proprietary, meaning there's no chance in hell they'd ever be adopted by Microsoft or RIM, much less the entire industry, as the basis for their mobile browsers. Update: BTW, Ballmer himself mentioned they might look at WebKit.
You could rail against the idea of WebKit becoming a "monopoly," but you'd be foolish to do so: Web standards are important, and WebKit, which is again, open source, is dedicated to standards compliance and performance. A performance and compliance standard that web developers could count on in every single mobile device wouldn't be a bad thing—far from it. It would mean even more amazing web apps, since developers would know they'd run on any mobile device, no matter what "OS" they were running underneath—the web would be the real OS.
That day is coming. I just hoped I'd see it a little sooner.