Remember those "cringingly blurry" photos we published a few weeks back that supposedly depicted Microsoft's long-rumored iPod-killer? Well it looks like our tipster may have been right on the money with his assessment, as Reuters is reporting that "sources familiar with the plans" have confirmed that Redmond is indeed working on a portable media player, along with an iTunes-like service to feed it content. Although the informants didn't give much info on the hardware (none at all, really), the service is apparently looking to differentiate itself from the iTMS by encouraging users to hang out and community-build (how Web 2.0), and while it will offer a subscription option a la other PlaysForSure-powered sites, the main focus will be on the pay-per-download model. A Microsoft-branded service may come as a bit of a surprise to some folks considering past licensing issues the company's had with the labels, along with its recent involvement in launching MTV's Urge, but we know at least one person who's seen this coming all along.
P.S. Not that this helps you out much, but we can say that we actually caught a glimpse of whatever this device is, and so far, we like what we see.