Dean Takahashi of The Mercury News breaks news this morning that Microsoft is working on a portable gaming device that--like the PSP--does video, music, and games too. This news confirms numerous rumors that such a device was in the works. J Allard is leading the team, with Greg Gibson (system designer for Xbox 360) and Bryan Lee (finance chief for Xbox business), according to the report.  The device is still in its early stages and may not hit store shelves until 2007, writes Takahashi. That's just about enough time for Sony's redesigned PSP and Nintendo's re-re-redesigned DS to be right there with it.

The Microsoft product would compete with Sony, Nintendo and Apple Computer's products, including the iPod. And Microsoft has some of its most seasoned talent from the division that created its popular Xbox 360 working on it. Game executive J Allard leads the project, and its director is Greg Gibson, who was the system designer on the Xbox 360 video game console. Bryan Lee, the finance chief on the Xbox business, is leading the business side of the project.

By anchoring its entertainment device as a handheld game player, Microsoft is starting from its position of strength in the entertainment business that it hopes Apple cannot match, even with its iPod. The game press has dubbed it an "iPod killer," but its functions would likely more closely resemble Sony's PlayStation Portable multimedia gaming device.