One of the rumours doing the rounds over the weekend is that Microsoft is intending to go down the same path as Apple and release a mobile phone based on its own portable media player, Zune.

Details are scant at present but reports suggest that the device would look and feel very similar to the Zune – even using the same interface instead of Windows Mobile.

The Zune phone would be able to interact with the existing Zune marketplace, allowing for the downloading and sideloading of media, but would also be able to connect to an Xbox 360 and act as a media extender by streaming content.

In terms of timing, the device is expected to be hitting shelves in time for Christmas, which would take it head to head with the Apple iPhone as it arrives on European shores.

Unfortunately, the Zune project suffered a bit of a knock last week when Bryan Lee, the head of the Zune project at Microsoft, stepped down to purse other interests.

The move sparked dark rumours about the future of Zune, which was expected by Microsoft to be “the iPod killer”, although today’s rumours may change that outlook.

Although the Microsoft MP3/media player made a dent in the market when it launched in November, it still tails the iPod by some margin.