According to Broadpoint AmTech, Microsoft is planning a Microsoft-branded smartphone, to be released in the second half of 2009. If true, Microsoft seems to be aiming for a device that closely integrates hardware and software, much like the iPhone and Blackberry devices.
Microsoft keeps on denying their plans for a phone but if you look at their track record, they have a tendency to retract from such statements (the Zune portable media player is a good example). Perhaps the new phone will feature will feature a Zune-like interface with Windows 7? Who knows.