Microsoft may be working on an all-in-one portable entertainment device designed to take down the iPod, Sony PSP, and any other company that markets a hand held music player, movie player or gaming device. This tall order surfaced in an article Dean Takahashi wrote for The Mercury News. Although Microsoft does have a tendency to roll over its competition, claims of an all-in-one-kill-everything-else device seem a bit dubious, especially after the underwhelming response to the Ultra-Mobile PC, code-named Origami.

According to Mr. Takahashi, Microsoft is putting some of its Xbox team on the project, including J Allard, Greg Gibson, and Bryan Lee. Speculation is that this "Xboy" device would hit the market some time in 2007.

Although details are slim right now, such a device would likely have the horsepower to play versions of Xbox games that have been ported to work on the smaller-format device.

An all-in-one entertainment device, similar to Sony's successful PSP, sounds compelling. Despite the popularity of the PSP, however, it doesn't have the market share of Apple's iPod. The PSP is a gaming machine first, and it handles that task quite well. As a music and movie device, it's more cumbersome than an iPod.

Mr. Takahashi claims that Microsoft's version of the iTunes Music Store, code named "Alexandria," is already in the early stages of development. With a music store in place, Microsoft would be in a better position to steal some of the digital music market.

If Microsoft plans on stealing the music and video market, along with the portable gaming scene, it has a lot of work in store. Unlike Apple, Microsoft doesn't have control over the whole package. iTunes, the iPod and the iTunes Music Store have been designed to work together seamlessly and intuitively. Until Redmond's engineers can top that, Apple will have the upper hand.