Take this with a grain of salt, a saltine, and the Bonneville Salt Flats, but the Diffusion Group says Microsoft is preparing to be thinking about getting poised to enter the portable gaming market.

And, because they don't have much in-house experience building portable gamer players or portable music devices, they've been looking at two different strategies. Licensing an Xbox OS to others to build portable hardware, or making its own player with its own designs.

What do we think about this? If they can make a device that's as cool as the Windows Media Center interface, plays games as well as the DS, and doesn't rely on proprietary formats like the UMD, but instead has a hard disk that you can dump DivX movies onto, then this will be killer. Don't think we're any more on target than these Diffusion guys though. – Jason Chen

Microsoft to Enter Portable Gaming Market in Late 2007/Early 2008 [TDG Research via Ars Technica]

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