Zune 3 Rumor - Upgraded Services (With Upgraded Capacity)?

Engadget offers a quote about the "next Zune" that intrigues us somewhat fierce over here ZuneLuv headquarters.

According to those fellas, they've got a quote from Matt at Cnet that states the following - "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."

Shall we speculate? Sure, Cesar wouldn't approve but, … dear friends, … this isn't Cesar's blog.

If Matt is right, we got 3 things here: 1) Zune software is being upgraded 2) Zune services are being upgraded and 3) we're looking at more in the "software plus services" arena.

We've been saying since day one that putting more on the Zune and less on the desktop would be a great idea. Don't forget - it was this site that scooped the Zune Podcasting Client beta story. Our writers said more than once that these devices have wifi - and should be using them for something other than trading Black Eyed Peas songs (not that we have anything against the Peas).

Let's look at the competition: The iPod Touch certainly does more than just play content (and isn't there rumor of an announcement next week?). Let's not even mention the iPhone … We know Microsoft is working on a response. Is this it?

Another element: Microsoft is working hard on Mesh and brags of syncing with both your "Device" and your "Mobile" (soon) - they aren't the same thing? Could Zune be in there? Just speculating, of course …

Microsoft has a major upgrade coming to the Xbox this fall. Could some real Zune integration be part of the picture? This is the third year of Zune - so one could dream of the two devices actually doing something together …

Our dream is a device that syncs Podcast and other content over wifi without the need for a desktop client to make it all happen. We also want capacity for our purchased Zune content to work on the Xbox and vice versa.

What do you want/think?