Crunch Gear got the tip, and knowing Microsoft and Bill Gates the Zune Phone is highly probable. But as early as late 2007? According to the tip, Microsoft execs have just decided to go make the device - the engineering and designing part hasn't begun, but it's almost certain it's going to be a smartphone and will utilize the Zune interface. It's not, therefore, going to run on Windows Mobile, which easily would be as much of a scandal as the Apple iPhone not having 3G.
Besides being in sync with the Zune Marketplace, the Zune Phone will be able to sync with the Xbox 360 and have video streaming capability from both devices through a wireless connection. Microsoft will be hoping that this will give the new device a boost in the market with the 360 having over 5 million subscribers.
The expected release date is late 2007. With Zune Marletplace and Xbox 360 Marketplace available on a Zune Phone, an onboard camera seems to be moot at this point, but let's wait and see.