Will you be surprised if you see a Microsoft Smartphone competing with iPhone probably next year. Microsoft have a head start and some experience in the mobile business. Windows Mobile will go to version 6.5 and then 7.0 but what about the rest? If they can outplay Apple iPhone which I think possible since they are Microsoft they have been in business for long time, except for the line of Phone.
Considering the Zune, Microsoft can just upgrad a Zune to be a phone, like what an iPod to iPhone. But I don't think will be a Zune; the Microsoft's smartphone will be built on NVIDIA’s SoC Tegra chip or system-on-a-chip platform. The Tegra APX 2500 is the chip for the phone and it has a 600 MHz MPCore Processor, up to a 12-megapixel camera support, GeForce ULV support for OpenGL ES 2.0 and up to 720p H.264 decoding. The NVIDIA nPower technology will get you over 10 hours of HD video playback and about 100 hours of audio.
Smartphone competitions are getting hotter since rivals are built in start of their line of businesses, Apple vs. MS. Do you think in 2009 Microsoft's first smartphone is ready to compete against Apple’s third generation iPhone? I am not so much into Apple, so if I have to choose I will go for Microsoft.