Microsoft and Verizon, the Journal says, plan to launch the phone and an app store early next year specifically as an iPhone competitor.
“a good source” claiming Microsoft are combining the Zune and technology from Danger (the company behind the Sidekick) to create a device offering “true competition to the iPhone”. Codenamed “Pink”, a prototype could be finished in time. 
Rumored “Pink” or Zune 3 they call…
Specifications:
The Zune 3 is also a phone with all the features of the Zune 80, with new features such as internet explorer, wifi marketplace, common phone apps, and more.
The Zune 3 is fully touchscreen, however, the lower panel buttons are touch "sensitive" play/pause/call, zune, and back/hang up buttons that glow, they are permanent (similar to the chocolate's buttons).
The Zune 3 is available in 16GB, and 32GB flash memory sizes.
Navigating the Zune 3 is similar to the 80's squircle except on the touch screen.
The screen itself is a high quality, scratch resistant, touch-sensitive glass that covers most of the front of the device.
Around the perimeter of the glass is a glowing light that can be customized to the color of the user's choice through the settings menu.
The remainder of the device's exterior is similar to the Zune 80's finish, including the hold switch to de-activate touch.
Video's are now presented in high-quality widescreen format.
The Zune 3 is not restricted to any particular network.
The device has external speakers for speakerphone functionality and to share music with your friends!
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