This is a post I made on Engadget on Jan 1, '08.

http://www.engadget.com/2008/01/01/predictions-for-2008/1#c9585106

Within the next two years, Microsoft will release a Windows core that will be the basis of every product: Windows, Server, XBox, Zune, Smartphones, Surface, etc.

Microsoft will announce an updated XBox lineup with XBox Arcade, XBox Premium, and XBox Ultimate. The Arcade version will be a low-cost (sub-$200, target $149) entry level machine with game-playing capabilities only. The Premium version will be a $399 version with all the features of the Arcade plus hard drive storage for DVR and IPTV capabilities, as well as the abilty to load Games-for-Windows-approved games. The Ultimate edition will be XBox software that you can load onto your own computer and turn your own rig into an Xbox machine. The Ultimate edition will only support specific CPUs and GPUs, and will not install onto a machine unless those requirements are met. The XBox Ultimate will be available for purchase only from Microsoft.

Zune will become a more powerful force in the DAP market. A Zune-software add-on will turn the next generation of Windows Mobile into a Zune player provided the hardware supports it. That means a vendor can create their own DAP or SmartPhone and load the Zune software on it. iPhone competition anyone?

Remember Windows Mobile? The next version is version 7. It's no coincidence that it is the same as Windows. Expect a synchronized release cycle from here on out.

Windows Server is too business-focused for the consumer-oriented Engadget audience, so I'll leave those predictions out of here.

Microsoft Surface will become a novelty item that will not take off in the home market in its current form. However, the technology and public use (hotels, conferences, kiosks) will make consumers more aware of touch-enabled technology for the home (as the iPhone has done for cell phones), and as a result, computer usage will expand further and reach that elusive segment of the population: the people afraid of technology because it's too complicated.

All of this is my own imagination running wild. I have no inside sources, and everything is simply my own version of what I'd like to see Microsoft do in the near future...