When E3 comes so do many rumors. Not to say this is a new rumor, it just seems there is more force behind it recently. Microsoft is not happy with just the home console market and may want to release a handheld. The reason is simple, there is a lot of money in handhelds. Some people may be skeptical, but I have been a strong believer in this rumor since it's inception for a two reasons.
We all know Microsoft loves money and likes to dominate a market, so why wouldn't they want handhelds? It might have been difficult with Nintendo's strangle hold on the market, but now that Sony has gotten a decent amount of the market share I think Microsoft can come in with more features than both of then and steal a decent amount of market share.
There is also a little background to give this rumor significant weight. Microsoft merged it's Windows Mobile team into the Xbox group last year as stated in the above link. Why would Microsoft do this if they weren't going to at least implement some Xbox technology into the next realese, or vise versa.
If Microsoft does make a handheld you can be sure of a few things.
1. It will be superior in power to the other handhelds on the market at release.
2. It will play WAV, WMV, probably MP3, and maybe some other third party file types.
3. It will connect with Windows Media to get music, videos, and pictures.
4. There will be Halo, Fable, and PGR games for it.
5. It will run a version of Windows Mobile.
5. Different configurations will be available.
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