In the last two months at least 6 of our listeners have told me this was going to happen and I pretty much let it slide as Microsoft had quit talking to the content providers (record labels). I guess I was wrong.
There is enough fact floating about to make this more than a rumor. Microsoft IS talking to content providers and there have indeed been secret demonstrations of the devices and the service. It's just a matter of time, now, and we will get to see how the MS device and service stack up to Apple's offerings in the arena of public opinion and sales.