Speculation concerning the possibility of a Microsoft portable has run rampant for months. San Jose Mercury News reporter Dean Takahashi helped fan the flames when he released his new book Xbox 360 Uncloaked, in which he suggests that Xbox executive J Allard had been tapped to head a new group centered around designing a portable device.

Now financial website Bloomberg.com is reporting that Microsoft is preparing to launch a J Allard-overseen portable device by this Christmas. J Allard and his team will be under the supervision of another prominent Xbox exec, Robbie Bach. The last time these two worked on a significant device, of course, was the Xbox itself. The Bloomberg.com report, however, indicates that the portable is being positioned as a rival to the iPod, not a gaming handheld to take on the Sony PSP and Nintendo DS. Like the video iPod, the MS portable will be able to play music and video.

It's entirely possible that Takahashi's reference and the device Bloomberg is talking about are two different portables and that Microsoft could be secretly working on an actual gaming handheld still. That said, Microsoft has long insisted that it would come after Apple in the music business. CEO Steve Ballmer said earlier this year that MS is "committed to doing what it takes to succeed" against Apple. It appears that 2006 is the year that MS officially takes on the iPod.

Bloomberg reports that MS even hired music industry executive Chris Stephenson, who has already met with music and Hollywood companies to seek licenses for their content, "according to industry officials with knowledge of the plans." MS has apparently met with music companies including EMI Group Plc and Universal Music Group, as well as TV broadcasters NBC, Fox and CBS to gain content for a music and video store to compete with Apple's iTunes service.

The MS portable is said to feature a higher quality picture and the ability to connect to other devices and the Internet via Wi-Fi, enabling the device to download content without the need to hook it up to a personal computer (like iPod users currently have to do).

Microsoft will certainly have a real challenge on its hands in taking on Apple. Since 2001, when Apple CEO Steve Jobs introduced the iPod, 50.8 million players have been sold. According to the NPD Group, the iPod holds 77 percent of the $4 billion U.S. market for digital music players, and the iTunes music store is used for 72 percent of music downloads. Apple has built up a ton of brand equity among consumers, and it's not like they're resting on their laurels. Apple is talking with Hollywood studios to add movies to the plethora of music, television shows and podcasts already available on iTunes.

So while the MS portable has no gaming functions to speak of, the notion of a portable Xbox will likely linger for some time. After all, rumors persist that Apple is looking to enter the gaming space with a video game iPod of sorts; would MS want to be left out?