The proposal and its rejection, first reported by the Financial Times, came as part ofbetween the commission and the Redmond, Washington, software company.
The commission believed the CD-ROMs distributed with new computers would get little use and would be an ineffective channel for distribution, the source said.
The commission's proposed final decision, which may not include any suggested remedies to its antitrust concerns, is expected to be considered by an advisory committee made up of representatives of the 15 European Union states in the first and third weeks of March, a second source familiar with the case said.
According to a draft decision, the European Commission has, and curbed competition by tying its Media Player program--used for playing music and videos--to its Windows operating system.
The commission has been considering an order which would tell Microsoft to unbundle Media Player from Windows, which the company insists would wreck the system.
Alternatively, it has considered an order which would require Microsoft to bundle in the audio-visual software of rivals, but as a part of the software package on the computer rather than on a separate CD-ROM.
The commission has also determined that Microsoft uses its Windows monopoly to damage competitors selling low-end servers and audio-visual software.
The commission decided that Microsoft's server software runs better with its Windows operating system than does server software from rivals. It wants Microsoft to give competitors enough information so that their servers work as smoothly with Windows.