Maybe that's what the "surprising step up" is...though I think it will be more of a competitor to the iPhone as your title insinuates.
I think MS can be accused of being a bit half-arsed with their efforts on the zune media players. It's only released in retailers in the US for starters and they really needed to get the zune marketplace on LIVE last year, which is now slated to happen sometime this year. Once that happens there's reason to believe they can make a buck out of this ill-fated division with the huge exposure and customers it brings.







