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Like others said it just does not make sense with the direction technology is going.

They are building on gaming with WP7. I have one. Has its pros and cons, but I love that I can play Xbox Live games on it, earn achievements, interact with my console with it, ect. They are making steps in the right direction.

Also remember they will be releasing the Windows 8 platform that will be used on their Tablet. They are simply trying to go in the direction of where the market is heading.

A separate handheld just simply does not fit in Microsoft's interests and overall strategy.