Now, citing unnamed sources, The Wall Street Journal is reporting that the software giant and the mobile-phone carrier are in talks to develop a multimedia touchscreen phone, code-named Pink. The device is expected to be available next year.

Jeffrey Nelson from Verizon Wireless, however, declined to confirm any of the reports, saying, "We're not commenting on this sort of marketplace rumor."

Project Pink

The Journal reported that Verizon has been working for several months on Pink, a project started by Microsoft, to develop the touchscreen multimedia cell phone for Verizon's network .

The device would include music and video functionality, as well as software that would add another platform to extend Windows Mobile. Windows Marketplace for Mobile, Microsoft's new app store, is also likely to be included, according to the Journal.

The Pink project is building on both the hardware and software knowledge that Microsoft gained from its acquisition of Danger, creator of the T-Mobile Sidekick, last year.

Too Little, Too Late?

Analysts believe it may be too late for any "iPhone killer," as Apple has had the lead for some time.

"It might mean that Verizon Wireless holds on to a few more customers," said Ken Dulaney, vice president with Gartner. "But it does not bring customers to Verizon Wireless."

As for Microsoft, there would be some issues with the operating system and user interface.

"One, it would have to be using Windows Mobile 6.5, which is nowhere near the iPhone in terms of user experience. That is why Microsoft is planning Windows Mobile 7, which we don't believe is due until year-end 2010," Dulaney explained.

The device could use HTC's TouchFLO interface, which is layered on top of Windows Mobile 6.5.

"They have been working to improve this because they have been disappointed in Microsoft's progress to date," Dulaney added. "While the UI is better and more intuitive, it's still not up to iPhone standards."

When Microsoft delivers its app store, users must recognize that the experience is not just based on having a lot of apps in the store, said Dulaney -- it depends on the device, too. "The hardware has to be great and the software UI has to be great," he said. "Both have been weak so far."

Rumor Mill in Overdrive

Earlier this week, there was speculation that Apple may be working on a device for Verizon Wireless. Reports suggested an iPhone lite with a lower price point than the iPhone 3G, which AT&T sells.

Meanwhile, another story emerged that had Microsoft launching a rival to the iPhone, the ZunePhone, through Verizon Wireless. Microsoft didn't dispute talks with Verizon, but said it's not working on a ZunePhone.