If rumours are to believed, Microsoft is doing everything it can to burst Apple's bubble with the 'iPod-killer' device that is said to be coming to market before Christmas this year.

News today indicates the Microsoft media playing device will sport video and audio playback, and wireless connectivity. It suggests Microsoft is preparing to answer Apple by entering every development area rumours have claimed Apple plans to play in.

And in what could be seen as a savage slap at Apple's iTunes marketshare, speculation now claims the company will offer iTunes users the opportunity to download any tracks they have purchased from Apple at no cost - but in Windows Media format.

"Microsoft will actually scan iTunes for purchased tracks and then automatically add them to your account. Microsoft will still have to pay the rights-holders for the songs, but they believe it'll be worth it to acquire converts to their new player," Engadget claims.

The report cites sources who are involved in Microsoft's discussions with labels and movie studios. It reveals that the device screen will be larger than that of the current video iPod and will have social-networking features, similar to Xbox Live.

The digital media wars will enter a new phase at Christmas, when Microsoft is anticipated to plan to launch its device. Piper Jaffray analyst Gene Munster believes Apple will release an updated sixth-generation iPod in autumn, which will feature wireless connectivity.

"There has recently been a lot of talk about Microsoft's new wireless MP3 player and clearly Microsoft is rich with resources to compete with Apple," Munster said. "We do not believe, however, that the yet-to-be-seen Microsoft offering will be a worthy opponent for the iPod."

Engadget predicts Microsoft will launch as a virtual mobile phone network service next year, moving the music battle into the mobile space.

This story first appeared on Macworld.co.uk