Sony has the PSP, Nintendo has the DS. For years, Microsoft has left the two slug it out on the handheld gaming market - perhaps until now. Well-placed sources within the publisher have told TeamXbox.com that Microsoft is in the final stages of a "digital entertainment handheld."

One of the sources made use of an "xYz" moniker for the handheld, emphazing the Y and suggesting that the "digital entertainment handheld" sits in between the Xbox and Zune platforms - perhaps a combination of gaming and media playback. Although the source did point out that the name has not been decided yet, the "Y" was simply to highlight the would be features of the new device.

Another source confirmed the existence of the handheld at least since December of last year, describing the device as "unlike anything on the market today." The source added that the only way to describe it is to "think of a mashup of the Sony Mylo, the PSP, and the iPhone...errr the iPod Touch; [the MS handheld] doesn’t need access to a phone network."

“Although the Microsoft handheld is definitely a converged device, this is not a Zune Phone,” the source added. “Microsoft won’t compete with its Windows Mobile customers.” What it is would be primarily be “a portable game console and a media player.” The "xYz" supposedly sports a WVGA screen, with "hardware features not found on any handheld on the market."

It's definitely not the first time for us to hear about a Microsoft gaming handheld. Bill Gates himself has hinted on such a device way back in 2006. Although UK Xbox xec Neil Thompson put the rumors to rest in the same year, it appears that the motion-sensing device isn't the only hardware on Microsoft's plate right now.