The mythical Xboy or whatever a portable Xbox could be called is surrounded by more vague rumors and expert opinions than the average celebrity party in Beverly Hills. While Peter Moore, Microsoft’s chief of Xbox, recently explicitly killed off all speculation concerning the device, a new report from The Diffusion Group suggests it could be more than possible.

Peter Moore was quoted on E3 2006 as saying:

“We need to be very focused on what we do. I think one of Sony’s challenges right now is they’re fighting battles on many fronts, whether it’s Blu-ray, whether it’s Cell technology, whether it’s PSP vs. DS, whether it’s PS3 vs. Xbox 360. […] You’ve got to stay focused and you’ve got to put your money where you need it to be to be successful. Coming out with a handheld they spent a lot of money.

And if you’ve got hundreds of millions to spend, do you pound it behind Xbox 360 or do you go off and create another device? I know the answer to that one! I mean, you’d never forgive yourself if you went off and created a handheld device and took resources away, physical, human, and financial resources away from 360 and somehow didn’t develop its full potential because you didn’t have the right people, the right money, the right marketing, the right games on it. It’s a question of focus.”

That’s a rather explicit way of saying: “okay we’re not doing it, and that’s final”. But where do all the rumors come from then? New-media research firm The Diffusion Group is now adding to the confusion by putting out a press release saying Microsoft is expected to enter the portable market late 2007 or early 2008. Even stranger, they’re suggesting Microsoft will not be building the fabled Xboys themselves, but licensing the technology out to selected third parties who then have limited freedom to create the portable Halo-machine.

Microsoft has been evaluating two options regarding its portable gaming strategy: licensing a version of its Xbox OS for others to build portable hardware designs upon, or introducing its own branded PGC. “While licensing the software is consistent with Microsoft’s larger strategy, and no doubt Microsoft has endured many failures in regard to hardware plays, the success of the Xbox presents Microsoft with a unique opportunity,” said Michael Greeson, CEO of The Diffusion Group and co-author of the report. “Microsoft owns an established and highly-regarded hardware brand, meaning that they can enter the PGC market from a position of strength, a privilege not enjoyed by any other player except those already active in the PGC space.”

With Microsoft explicitly saying ‘nay’ and many many research firms and business experts saying ‘probably’, my dollars are on Microsoft playing its usual “no comments on rumor or speculation” strategy and is most certainly researching possibilities for a portable Xbox. But research does not mean you’re actually planning on definitely doing something, so they may not even be lying. Time will prove who’s right probably.