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Microsoft working on 'Zune HD2' powered by Windows Phone 7

Similar to how Apple's iPod touch came from the development of the iPhone, Microsoft reportedly plans to base the follow-up to its Zune HD media player on the Windows Phone 7 Series mobile operating system.

At this week's Game Developers Conference, Microsoft unveiled its new XNA Game Studio 4.0, which allows developers to create games that can run on a variety of devices, including Windows desktops, the Xbox 360 and future phones running Windows Phone 7 Series. In addition, ZDNet's Mary-Jo Foley said Microsoft is working on a "Zune HD2" that will be similar to the iPod touch, in that it will have no phone functionality.

But the migration to XNA 4.0 means the current version, 3.1, will be left behind. XNA 3.1 is used to write games and applications for the existing Zune HD, which was just released last September. Microsoft has reportedly encouraged developers to migrate their titles over to the Windows Phone 7 Series platform.

That move would make the small number of developers who have written applications for the current Zune HD to abandon the device, at least in its current iteration. Though Microsoft has not announced any plans, it's possible that the Zune HD operating system could be updated for compatibility with the new XNA 4.0 suite.

"The company's decision to cut Zune HD from the list of targets for XNA Game Studio 4.0 may rile some developers/users, I'd think," Foley wrote.

Windows Phone 7 Series was revealed in February and will be on devices due to hit the market by holiday 2010. The new mobile operating system borrowed heavily from the Zune HD touchscreen interface, and uses the Zune branding for its integrated media player.

The Zune HD sports an OLED multi-touch screen, can tune into HD radio stations, offers playback of high-definition movies and TV shows, and has access to the $15-per-month unlimited download Zune Pass.

Last September, Apple introduced a 64GB iPod touch with a 50 percent faster processor supporting Open GL ES 2.0. In January, the Cupertino, Calif., company revealed that iPod touch sales have been strong, growing 55 percent year-over-year.

Recent surveys have found that the iPod touch has grew faster than the iPhone in late 2009. Another study discovered that iPod touch users spend more time using applications on their device than iPhone users.