MediaFile

Watch Microsoft’s Robbie Bach getting out of breath playing a wall-demolition game using Xbox’s new Natal technology, which works entirely on body gestures rather than a hand-held controller. (Click on the video and scroll onto 23:30)

Bach, head of entertainment and devices, demoed the new system at Microsoft’s annual financial analyst meeting in Redmond, Washington. There is still no date set for its commercial release.

The company hopes the new technology will vault it past Nintendo’s all-conquering Wii and rival Sony’s PlayStation.

Ah, the morning after.

Microsoft and Yahoo have finally come to an understanding, putting to rest what seemed like an endless back-and-forth (As Barry Diller said yesterday,  “We’re not going to have to talk about whether or not it’s going to happen anymore).

In case you were at the beach, on the golf course, riding your bike, or hiding out in a cave yesterday, here are the very basics: It’s a 10-year Web search deal; doesn’t include display; Microsoft will the guarantee revenue per search for the first 18 months; Yahoo expects deal to boost income by $500 million and save about $200 million in capex; Microsoft will pay traffic acquisition at an initial rate of 88 percent; Yahoo will act as the global sales force for both companies’ premium search advertisers; etc. etc.

Just about everyone has weighed in on the deal, and more analysis is certain to come in the days ahead. In the meantime, here’s what we see as a few key questions about the deal.

It takes a deft touch to vanish a boatload of cash, but Yahoo seems to have done it.

Disappointed investors voted with their feet initially when the Microsoft-Yahoo deal, announced in the early hours of Wednesday, came with reams of detail on search, revenue-sharing, technology and advertising tie-ups — but no anticipated upfront payment, which some had put at around $1 billion. Yahoo prompty lost about a 10th of its market value.

“This agreement comes with boatloads of value for Yahoo, our users, and the industry, and I believe it establishes the foundation for a new era of Internet innovation and development,” Yahoo Chief Executive Carol Bartz said in a press statement released jointly with Microsoft on Wednesday.

Few in the media business know dealmaking better than Barry Diller.

So it comes as little surprise that the head of IAC/Interactive was asked about both the Microsoft-Yahoo deal and the AOL separation during an earnings conference call today. He sounded upbeat on both situations.

Here are some excepts:

Microsoft-Yahoo:

One significant thing that happened is we’re not going have to talk about whether or not it’s going to happen anymore [Ed -Amen to that!]. Look, Microsoft will be able to report a greater share in terms of search and get — at least in some minds of the talkers — into being up there in competing terms with Google. And Yahoo doesn’t have to spend anymore money on search. As far as being able to execute, that is very complicated.

For us, I think that the significance is we want, need, must have at least two competitive forces, big competitive forces… I want to have two players out there wanting to get our incremental business, which is, of course, of real value to the companies.

Microsoft says the best way to resolve its dispute with European Union competition regulators may be an election.  The software giant spelled out late on Friday Brussels time plans for an election-style ballot to decide the question of which browser consumers use in Windows.

The forthcoming Windows 7 operating system would offer a "ballot screen" that lets consumers turn off Microsoft's own Internet Explorer (IE) and instead use rival browsers such as Mozilla Firefox, Apple Safari Google Chrome or Opera Software.

 There are two obvious issues with this approach: 1. Most consumers rely on default settings and rarely change their browsers once they are installed. Will more than a small percentage of users elect to change browsers at the moment they are installing Windows?

Well, that’s one less controversy to worry about. As CrunchGear reports, Microsoft has apparently tweaked the “Laptop Hunter” commercial that ruffled feathers over at Apple. Ah peace, for now.

Here’s the latest version:

By now, reporters and analysts who cover Yahoo have come to expect (and dare I say, delight in) CEO Carol Bartz’s colorful figures of speech and the occasional f-bomb drop during conference calls.

So Bartz’s tame delivery of Yahoo’s second-quarter earnings on Tuesday was a bit of a surprise. We know the 60-year-old is recovering from knee surgery, but was this even the same Bartz? The one who threatened to “dropkick to f–king Mars” employees who leak information to reporters? Or the one who asked the press to give Yahoo some “friggin’ breathing room” as the company figured out its next move? (Here’s a list of Bartz’s greatest hits).

By comparison, Tuesday afternoon was a bore, as Bartz stuck to a straight script. What’s more, she actually went so far as to compliment Bing, Microsoft’s new search engine that’s been pulling market share from competitors.

After pulling a page from Apple’s playbook with its plan to launch its own chain of stores this fall, Microsoft is calling on the expertise of one of the players who made its rival’s stores such a big hit.

The world’s biggest software company confirmed on Tuesday that it has hired former Apple exec George Blankenship as a consultant to advise on real estate, as it puts together its retail strategy.

Microsoft hasn’t said much about the stores since announcing them in February, but its chief operating officer last week came out with guns blazing, saying: “We’re going to have some retail stores opened up right next door to Apple stores this fall. Stay tuned.”

Get ready for another big week of earnings, with Apple, Microsoft and Yahoo the highlights (at least in our world).

Interestingly, talk about both Microsoft and Apple has been pretty positive ahead of their quarterly results, despite the rancid economy. When it comes to Apple, whose stock has been among the best performers in tech this year, the chatter is about the new iPhone, which it launched in June to big fanfare.

“I think the key is that core consumer demand is there,” Hudson Square Research analyst Daniel Ernst said in a recent Reuters story. “There are lines for $400 phones. Clearly they’re well positioned, and when the PC market comes back, we believe they’re going to take significant share.”

Some tech links to start the week:

I am seriously considering changing my byline to Zing, what with all the media attention a certain search engine is getting.

The New York Times looks at the ups and downs of turning brands into verbs. The jumping off point is Bing, Microsoft's effort at verbal one-upsmanship over Google, Twitter and over generic daily activities. The software giant must alter deeply ingrained computer habits to succeed. In the meantime, my original questions about Bing remain.

The more substantial news this week would be if Microsoft finally inks a search and advertising partnership with Yahoo Inc. It's not easy to overcome deal speculation fatigue -- it's been a year-and-a-half since Microsoft sought to acquire Yahoo outright, and a year since it dropped back to Plan B and sought out a more limited partnership deal. Boomtown reported Friday that Microsoft is down to a few short strokes away from signing.  Henry Blodget makes the point that Microsoft may have to pay up far more than the $1 billion it was offering a year back for such a deal.  Closing a deal now suggests renewed desperation on Microsoft's part after the paltry gain it received from Bing in June market share statistics for U.S. web search.