At this point, I think it is no longer rumors, but it is also not officially announced. Apparently, Microsoft is building something that is supposed to rival the ipod touch, the PSP, the DS, or maybe even a combination. I personally think it will be similar to the iphone rather than a handheld meant purely for gaming. This thing will probably be more for internet and apps than anything.
If you are looking for an official announcement, E3 would be the event to watch. There is no way they will reveal this anywhere else except E3. This will be huge if it really does rival the ipod touch. If it’s another fail like the Zune we will see Microsoft having wasted even more money on bad technology.
If Microsoft came out with something similar to the ipod touch would you consider buying it? Would you buy it even if you have an ipod touch? I’m assuming the touch is still the best because of its extensive application store, but the rival is probably cheaper than the original product.