Despite frequent, repeated denials from Microsoft that they aren't making a Zune Phone to pit against Apple's iPhone juggernaut, our sibling site WMExperts keeps compiling evidence that Microsoft might be doing just that.
The latest is that Pink (as it's code-named) has an ad agency, will be based on Windows Mobile 7 but have it's own proprietary UI layer, should be available next year-ish, and provide Zune, My Phone, and Windows Marketplace for Mobiles functionality.
Let's face it, Microsoft would be negligent and borderline daft not to integrate the technologies and leverage the brand of Xbox.
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