Apparently discussions have not been finalized yet, but the phone, which will be made by a smartphone OEM, will be powered by Windows Mobile but with added software capabilities. Likely based on Windows Mobile 6.5 or 7, it will come equipped with Marketplace for Mobile and probably other features of the updates OS.
The device is apparently the baby of the Pink project team of designers within Microsoft’s mobile division which is also known as the premium mobile experiences group. With help from the recently acquired Danger team, they are said to focus on creating software for mobile phones that connect to a variety of online consumer services, such as social networking and photo-sharing applications.
From our own information, the device is likely to launch with Zune software included, which should make a complete package that is currently needed to produce a competitive device.
Thanks Ishy for the tip.