There are two things that will help this be successful:

1.) Compatibility with the Zune Marketplace
2.) Compatibility with Xbox Live Arcade/Marketplace downloads

If they can successfully find a way to do this, I think it can take off. Imagine being able to play any or most of your XBLA downloads on the go and all this while listening to your own tunes from Zune.

As long as it plays Netflix, nothing else matters. u_u

So let me get this straight. Not only are we going to send a sub par brand into the fray of brands of Playstation Portable, Nintendo DS, and iPhone, but we are going to do it when the economy hasn't been great and the DS coming off of it's best year yet.

Please, please tell me this is staying a rumor for everyone's sake. Just not the time.

Zucas , why not having an alternate handheld in the market. I like the interface of the DS but the power of it is keeping me away of buying it...

Well, it would probably sell to a core of 360 owners. But overall this would seem more likely to hinder MS expansion into entertainment than help it.

Unless they take a massive loss by making it really cheap - or risk another RROD by pushing power without enough QC - then I just don't see the current market supporting it.

On the other hand if they decide to accept losses then if it gains a foothold via 360 owners they could be well positioned for future expansion.

Why? It's not like it makes a material difference in the quality of the games.

@zucas

the xbox brand has improved this gen...

Now that is certainly an idea. I admittedly doubted it at first, but that does kind of make sense, as most arcade games could be played on a handheld. Sony have kind of done that with PSP, but in most cases you have to rebuy the game....

Anyway, the problem is that FPS do not work on handhelds, so that kind of rules out proper Halo or Gears games, though Gears could certainly go the Killzone Liberation route.

I would still call myself sceptical, I don't think mid-gen is the time to be launching a handheld, the best time to launch it would be a year before the 720, to basically test some of the new Live stuff that they will inevitably have nex-gen

The DS and Psp already dominate the handheld market. Both portable systems are the number 1 and 3 most successful handhelds in history, respectively. MS doesn't have a breathing chance.

CES is in one month. Jan 8th. At least we will not have to wait long to find out.