Talk of an 'Xboy' may finally be coming to fruition.

When Microsoft decided to enter videogames, they never mentioned any ambitions about conquering handhelds. When Xbox started to field some success running up against Nintendo, though, missing ambition started turning into rumor and conjecture, and as Xbox 360 establishes itself in the marketplace, The Mercury News says work on a portable Xbox to rival the PSP and Nintendo DS is well under way.

The information was reportedly uncovered while journalist Dean Takahashi researched his upcoming book about Microsoft's development of Xbox 360, and describes the device as combining "video games, music and video in one handheld device," a machine that could essentially compete against Nintendo and Sony's videogame offerings and simultaneously offer Microsoft and opportunity to set their sights on Apple's iPod.

There was significant corporate restructuring happening a few months ago that resulted in managements shifts for several top-level Microsoft employees, including J Allard, formely the promotional face the company associated with everything Xbox. These days, though, Allard is allegedly leading the Xbox handheld project alongside Xbox 360 system designer Greg Gibson and Xbox business lead Bryan Lee.

When Microsoft released the first details on their Origami Project a few weeks back, speculation that the company was readying a handheld entry lit back up, and Takahashi's report is only adding fuel to the fire.

The Mercury News says the handheld likely won't appear on shelves until sometime next year, but that would also mean Microsoft would be prepping a formal announcement either at E3 or even as late as their annual fall press event. For now, though, we'll simply have to wait and see.

News-Source: http://xbox.1up.com