Microsoft planning WiFi-enabled portable media player, working on MVNO for next year

Ok, by now it's more or less an open secret that Microsoft is going to shift away from its current model and go straight after the iPod with a portable media player of its own, but we've landed some exclusive details about the new player courtesy of a trusted insider who is party to some of the discussions Microsoft is having with potential content partners.

Here's what we've learned:

Microsoft's new portable audio and video player will have a screen that's "bigger than that of the iPod video" (which isn't really saying much) and built-in WiFi so you can not only download content directly to the player (sort of like with the MusicGremlin), but actually participate in an Xbox Live-like social network that will help you connect with other people with similar taste and interests. Whether that's going to be the Live Anywhere service they introduced at E3 we don't yet know. But we do know the tag line they're pitching for the device combined with this new network is "Connected Entertainment."

But it gets better. To attract current iPod users Microsoft is going to let you download for free any songs you've already bought from the iTunes Music Store. They'll actually scan iTunes for purchased tracks and then automatically add those to your account. Microsoft will still have to pay the rights-holders for the songs, but they believe it'll be worth it to acquire converts to their new player.

Right now the new player is schedule to launch in November, but our source also tells us that Microsoft isn't stopping with a WiFi-enabled PMP, they're actually going to launch an MVNO next year using all Windows Mobile-powered HTC handsets. These handsets will let users connect to the same social network you'll be able to access over WiFi using the portable media player.

P.S. - Yes, we're still trying to get our hands on a non-blurry pic.