I don't doubt that Microsoft will put out a portable gaming device. They've been on the edge of it for years with the Pocket PC platform. If they toss a 1.8" hard drive in and give it a decent controller, its golden. Everything else is already there (The operating system with plenty of developers on board, a speedy CPU [xscale architecture is hitting 1.25 ghz in it's next generation], a nice GPU [nVidia has its GoForce 5500 out soon, ATI has something similar], Wifi, Bluetooth).