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Microsoft working on xPod [update 1]

Reuters has reported the altogether not shocking news that Microsoft is hard at work on a device to combat the iPod. Naturally, Microsoft hopes to beat Apple with better software. In reference to the upcoming competition between iTunes and Microsoft's new service, a source said:

"They [Microsoft] have been developing technologies that have really good music discovery and community, iTunes is the 7-11 (of music stores). You don't hang out there."

Could this be the truth behind the much rumored Xboy? As there is still no concrete evidence of the xPod's existence, I took the liberty of throwing together a concept sketch of what it might look like.

Would you buy an xPod over an iPod?

Update 1: Read link now directs to the actual Reuters article.