Is this more hype or more proof that the Microsoft Machine will soon be putting out a handheld gaming system? We will let you decide. According to Next Generation a a new report from The Diffusion Group suggests that Microsoft will use the recognition of the Xbox brand to enter the portable gaming market by either licensing portable gaming software or creating Xbox brand portable gaming hardware in late 2007/early 2008.

"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 Diffusion Group CEO and report co-author Michael Greeson. Coming soon to a Toys R Us near you?

- iamlegend