Last month Microsoft announced plans to offer PC makers deep discounts on Windows XP for "ultra low cost PCs." Microsoft defines ULPCs as computers with 10.2 inch or smaller screens, 1GB of RAM or less, 80GB or smaller hard drives, and 1GHz or slower processors (with exceptions for devices with an Intel Atom or VIA C7/Nano CPU). And touchscreen devices need not apply.

Now that a number of computer makers are starting to offer super cheap desktops by using some of the same cheap components that are showing up in these subnotebooks, Microsoft has extended its offer to companies building PCs it calls "nettops." In a nutshell, a nettop is a computer that sells betwen $100 and $299 and uses the Intel Atom Diamondville procesor.

This is a win-win for PC makers and Microsoft. While Microsoft will be charging just a fraction of the original price for Windows XP, the company will at least be getting its operating system on more computers, while manufacturers will be able to offer customers one of the most widely used operating systems in the world while keeping costs relatively low. Of course, it's hard to compete with free, and we're seeing a growing number of companies offer both Windows and Linux versions of their computers.

[via The Guardian]

Want to know how Windows XP runs on the XO Laptop? Just check out the video from the team that's been working on bringing Windows to the XO. While you'd think that Windows would have issues with the slow processor or the tiny amount of storage, the bigger challenges were apparently had to do with developing WiFi drivers and a BIOS that would support booting from a 2GB SD card (since there was no way Microsoft could cram Windows onto the 1GB of flash memory included in the XO.

Here are a few more highlights from the video:

• Windows XP and Office have not been modified. The XO laptop runs pretty much the full version of the operating system and office suite
• Video playback is surprisingly smooth, even with high bitrate videos
• You can record sound and video through the built in mic and webcam, although the webcam recordings are just as choppy as you'd expect them to be.
• You can rotate the screen with the touch of a button, and the display will change from color to monochrome when you fold the screen back into book mode.
  

[via Asus Eee Hacks]

Over the past few months we've heard inklings that Microsoft was in talks with the OLPC project to test Windows XP on the low-cost XO laptop. Now the New York Times is reporting that the OLPC organization will rollout a limited trial of Windows XP in four or five countries next month. If things go well, we could see a wider release by Septemeber.

This doesn't necessarily mean you'll be able to pick up a $200 laptop running Windows XP at your local Best Buy anytime soon. The primary markets for the XO laptop are developing nations where computers are expensive and hard to come by.

The OLPC team doesn't plan to stop offering Linux based computers. But the deal with Microsoft might make the XO more attractive to some nations and educational purchasers who had balked at the idea of paying for computers that didn't run Windows, still the dominant desktop operating system in most of the world.

The Windows license will add $3 to the price of the machines, and the extra hardware required to dual boot both Windows and Linux will add another $7.

Update: CNET reports that the Sugar team hopes to port the software to run on different computers. One of the first targets: The Asus Eee PC.

There are three things that separate low cost ultraportables like the Eee PC from higher end laptop computers. They're small, lightweight, and cheap. In order to keep cheap in that equation, computers makers like Asus are turning to Linux, the open source operating system that you can install and run on most computers without paying any licensing fees. And while Eee PCs, XO Laptops, and Mini-Notes aren't exactly taking over the world, this new class of low-cost subnotebook is certainly gaining a lot of attention. And that could lead some folks to believe (rightly) that Linux is a viable alternative to Windows and OS X.

Of course, Microsoft's not too happy with this development. So while the company had planned to discontinue sales of its Windows XP operating system by the end of June, 2008, Microsoft has made arrangements to continue selling and supporting its 6+ year old OS beyond that date. Because let's face it, Windows Vista isn't really designed for machines with slow processors and small hard drives.

But here's the thing. Microsoft does want to continue pushing Windows Vista. So while the company is encouraging PC makers to install Windows XP on low-cost machines as an alternative to Linux by providing deep discounts, IDG News Service reports that manufacturers will need to meet a pretty strict definition of ULPC (Ultra low-cost PC) in order to qualify for their cheap XP licenses.

That definition includes a screen that's less than 10.2 inches, 1GB of RAM or less, a hard drive with 80GB or less, and no touchscreen devices. You'll also need a 1GHz or slower processor, although Via's C7-M processors which run up to 1.6GHz are allowed, as will be Intel's new Atom processor.

That rules most version of the HP Mini-Note out, since all but one model ships with a 120GB hard drive. But that's probably fine with Microsoft, as the low-cost version of XP is really meant for PC makers who sell their computers in educational markets and developing nations. Computer makers will be able to get an XP Home Edition license for $26 if they sell their laptops in developing countries, while they'll pay $32 to license XP for use in developed countries like the US.

The HP Mini-Note, on the other hand is targeted at US consumers (and in fact, ships with Windows Vista).