The rumour of Microsoft launching a portable Xbox has once again surfaced. According to an analyst report by The Diffusion Group, Microsoft will release a handheld within the next 2 years.

According to the report, entitled 'On the Future of Portable Game Consoles: Analysis & Forecasts' "Microsoft has been waiting on the sidelines until its gaming console and software business reached sustainability, all the while watching closely how Nintendo and consumers in general would respond to Sony's PSP," said Thomas Wolf, a portable media analyst and co-author of TDG's latest report. "With global PGC revenues expected to reach $3 billion annually by 2008, and with only Sony and Nintendo active in the PGC space, Microsoft has before it an incredible opportunity. It has a critical brand presence in the console space, the breadth and depth of gaming titles, and the marketing clout necessary to enter this space and win decent market share."

"While licensing the software is consistent with Microsoft's larger strategy, and no doubt Microsoft has endured many failures in regard to hardware plays, the success of the Xbox presents Microsoft with a unique opportunity," said Michael Greeson, CEO of The Diffusion Group and co-author of the report. "Microsoft owns an established and highly-regarded hardware brand, meaning that they can enter the PGC market from a position of strength, a privilege not enjoyed by any other player except those already active in the PGC space."

Microsoft toyed with the idea of the Xboy a few years ago but nothing ever materialised. This new handheld may be a long way off but, it's definately going to be worth the wait.