Said Microsoft spokesman in Beijing Roger Chen, the two companies will explore "a wide range of scenarios for digital entertainment needs ... The project focuses on in-home network digital entertainment -- how to connect PCs, TVs and the Internet to provide this digital entertainment experience."
The first thought that comes to our mind is the Xbox 360, Microsoft's most prominent living room entertainment device, and potentially is related to their IPTV service. No concrete details have been given about the project, so consider this all speculation at the moment.
Microsoft Xbox 360