Whilst battling poor Zune sales and a complete drubbing online at the hands of Google, Steve Ballmer, CEO of Microsoft has backed down from a previous statement that Microsoft was indeed looking at a Zune type iPhone.
Todd Bishop from Seattle PI, reports that:

Lieberman asked, “When can we look forward to a Zune phone?” and Ballmer responded:

“It’s not a concept you’ll ever get from us. We’re in the Windows Mobile business. We can put Zune into Windows Mobile, we can put Xbox into Windows Mobile. We can pour everything in. We wouldn’t define our phone experience just by music. A phone is really a general-purpose device. You want it to make telephone calls. You want to get and receive messages — text, e-mail, whatever your preference is. You may want music, you may want to play games, you may want to carry your contacts with you, and you may want to pay for things. I think we have to think about the phone instead of as a fixed-function device, a phone is really kind of a general purpose device that we need to have clean and easy to use.”

I suspect that the major issue with a Zune Phone is that like the Zune player, it can only talk to other Zune Players, which makes for a pretty small group of friends. That would make the Zune Phone as popular as Mel Gibson at a Bar Mitzvah.

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