As for Zune HD, Microsoft "is struggling to keep up with demand," Bach said. "We're working hard on it for the holidays." Added communications director Jose Pinera, sales "exceeded our expectations" and sold out "in many outlets" after its Sept. 15 launch.

Microsoft’s move will give Zune a real shot at catching up to its competitor. Since its launch in 2006, Zune has been struggling to make a dent in the iPod’s massive market share. According to research firm NPD, in the first half of the year Zune’s market share was about 2 percent compared to about 70 percent for the iPod.

But, clearly, Microsoft hasn’t given up on this battle. In May, the company announced a new version of the Zune media player called Zune HD. Zune HD has a 3.3-inch capacitive OLED screen with multi-touch functionality, Wi-Fi, HD radio and an Internet browser. The device will also have HD video output capability.

The software maker did not announce pricing or capacity, though it said the device will use flash memory and attempt to take on Apple's high-end iPod models.

"This device is created to go head to head with the iPod Touch," Chris Stephenson, general manager of global marketing for Microsoft Zune, said in a telephone interview on Tuesday. Zune buyers will also be able to play HD content on their TVs via a dock, Microsoft said.

The software maker also said that at next week's E3 trade show in Los Angeles it will announce details on a new Zune-branded video service for the Xbox that will replace the current Xbox Live marketplace for TV and movies. The company didn't announce details or specifically say that content will be playable on both Zunes and the Xbox.

In the filing, Microsoft mentions a steep drop in Zune revenues in the holiday quarter compared to the same period the prior year. "Zune platform revenue decreased $100 million or 54% reflecting a decrease in device sales," notes the filing.

Those figures imply Zune revenue during the holiday 2007 quarter was around $185 million and that it fell to $85 million over the most recent holiday period.

After all of the misinformation and dirty lies spread about Obama over the course of the presidential campaign, this is the most shocking I've heard about him: He uses a Zune. This can't be possible.

Why? Because, as has been widely reported, Obama, many of his staffers and Joe Biden use a Mac. And well, Zunes don't work on Macs and ... my mind is blown.

I want to correct what I said yesterday about Obama using a Zune. I claimed that it was his Zune. I don't know for sure that it was his. It could belong to one of the many Secret Service dudes that were at the gym, Michelle, or even one of his daughters. His headphones were not the standard iPod headphones, rather ones that wrap around your ear like the image to the right. The headphones were gray colored, either because they were gray or because they were really worn from use.

The McDonald's deal is important because although every Zune has built-in Wi-Fi, the devices can only access free Wi-Fi hot spots that don't have a browser interrupt. That severely limits the types of public locations from which people can download songs wirelessly.

Many of the Zune's key new features, such as channels and "buy from FM" are most useful when Zune owners have access to a compatible Wi-Fi location. The McDonald's deal, struck with its Wi-Fi provider Wayport, adds nearly 10,000 places where people can access the Zune Marketplace store.