Looks like MS has declared war on Apple by confirming that they're working on a Zune phone. As I previously mentioned, I now own a Zune and I'm pretty happy with it.
Scott Watermasysk has a pretty funny idea about a commercial for the Zune Phone if they release before the iPhone (yes, it's always a race). If you have the time, check it out.
Now, if MS would only release an API for the Zune...now, that would be sweet!