Notable Windows journalist, Paul Thurrott, has been on the Microsoft Campus this week.
"...based on some unrelated bits of information I gleaned this week, I"m now convinced that Longhorn, the next major Windows release, will be delayed beyond even the dates that speculators have been throwing around. This news raises the specter, once again, of a possible Windows XP Second Edition release as a buffer between XP and Longhorn. Don"t scoff. Contrary to official denials, Microsoft has indeed investigated an interim XP release and is now looking into it again."
Truth be told, what Paul is saying is not that unbelievable. Microsoft took a lot of techies off the Longhorn program, and put them onto Service Pack 2 for Windows XP development; they wanted a good SP to ship which was going to set them (and Windows XP) in good stead for the next few years. However, at the cost of building a bit more redunancy into the Windows life cycle, they pushed back further the Longhorn release - as little as 6 months, easily as long as a year.
A SE edition of XP isn"t that hard to concieve. Microsoft have done it before (Windows ME - halfway house between 98 and 2000), and wouldn"t be afraid to do it again. One could see Microsoft for example putting in various features that are completed - e.g. aim to implement WinFS - and ship this as interim build; they"d have to work hard however to turn it into more than just a pay-for service pack.
The company makes a fair amount of its revenue from the Windows product line - they need to keep selling copies to keep the business as profitable as it is. An intermediary release would be a solution to a distant next edition of Windows, and would also act as a indicator of just that- a Longhorn release as far away perhaps as 2010.