120GB Zune coming
Yes, Microsoft is still working on Zunes, and has a new 120GB model in the works. But the real improvements are going to be in the software.
This is a bit of a tease, so I'll keep it short. Yes, Microsoft is building a 120GB Zune. Fan site Zunerama uncovered an FCC filing, and yesterday got Zune team member Cesar Menendez to confirm the news.
As iPod fans will no doubt note, 120GB is still short of the 160GB offered by the top-capacity iPod Classic. I can't say much, but I've seen what Microsoft's planning, and befitting its status as a software plus services company, the real advances aren't going to be in the Zune hardware, but in the Zune software and associated services. Apple makes great devices, and so far iTunes has remained ahead of the Zune software, but Apple has in the services arena. Microsoft has a huge challenge taking on the iJuggernaut, but they are far from giving up. That's good news for us--competition means better products from all sides.