Can you believe Xbox Live, the online arm of Microsoft’s Xbox 360 video game console, turns five tomorrow? Neither can we. That being said, this is a shining example of an area where Microsoft held on to become a dominant force in a vertical category. To celebrate this crowning moment several announcements were made which should make things even more interesting.

For starters, Microsoft is giving away for free between 12:01 a.m. PST on Nov. 15 and 11:59 p.m. PST on Nov. 16 an Xbox Live Arcade game for download. Of even bigger interest to gamers, particularly fans of the original Xbox, is word of a free system update which will offer, among other enhancements, the ability to purchase and download original Xbox games. These Xbox Originals look to initially include Halo,” “Psychonauts,” “Crimson Skies: High Road to Revenge” and “Fable,” among others.

Suppose you own a company that both Microsoft and Google want to own a part of. Who do you choose to do a deal with? Do you base your decision on which company you think will be the stronger in the future or just on who’s offering the most cash? This is the present dilemma that Facebook owner Mark Zuckerberg is facing right now. Both Google and Microsoft are neck-and-neck with striking a deal that would see either one of the two online titans getting a 5-to-10 percent ownership with Facebook. The deal is expected to close sometime today or tomorrow.

The potential deal is likely to be huge for whomever gets it. Both Microsoft and Google are set up to capitalize on serving advertising to Facebook’s 34 million members. No one from either of the three companies is offering to comment about the deal but if the “The New York Times” is reporting that it exists, take it to the bank.

Microsoft said today it is launching a specially branded, limited edition Zune “produced in collaboration with Latin Grammy-nominated artists Wisin y Yandel.” This particular Zune will price around $200 and is for sale exclusively through Wal-Mart.

The Wisin y Yandel Zune is black, stylized and comes in in customized Wisin y Yandel packaging. It sports a 30 GB hard drive pre-loaded with the new Wisin y Yandel 19-track album, “Wisin vs. Yandel: Los Extraterrestres.” This portable media player has a three-inch color display and can store up to 7,500 songs, 25,000 pictures or 100 hours of video.

Today Microsoft has officially launched the highly rumored Xbox 360 Arcade console at a reasonable $279 bundled with games and trying to pick up on the “entire family” of gamers and bring some more attention to the Xbox Live Arcade games.

“As families gather together this holiday, it’s the perfect time to launch a new low-priced, high-value Xbox 360 that plays games, TV shows and music for everyone to enjoy,” said Jeff Bell, vice president of global marketing, Interactive Entertainment Business at Microsoft. “In addition to offering an incredible all-in-one package for families to get right into the fun, the Xbox 360 Arcade system features the industry-leading Family Settings, which allow parents to control what their kids are watching and playing — and we know how important that control is to families around the world.”

Microsoft is working hard to be competitive with its rivals Sony and Nintendo in Japan’s market which has proven so far to be fairly difficult for them. Despite a stellar month in September for US Xbox 360 sales, the company has not faired as well with the Japanese market over the past year in keeping up with the home town’s PS3 and Wii game consoles. As the holidays are nearing the company is keeping pace and making moves with its console trying to spur some additional sales with an announced price drop for the Xbox 360 core system and the 20GB bundle.

Starting on November 1 in Japan, the Xbox 360 20GB bundle will start retailing for ¥34,800 ($306) which is a $44 cut from its previous price. The 360 core system will start going for ¥27,800 ($245) which gives it an $18 cut. Microsoft is also putting out a limited Value Pack for the console for ¥34,800 ($306) which comes with Viva Pinata and Forza Motorsport 2 titles but no HDMI cable.

After almost a year of trailing in console sales, Microsoft’s Xbox 360 has finally pulled ahead of the widely popular Nintendo Wii marking the first time since the Wii’s launch last November that it hasn’t been number one. As anticipated by many, Microsoft pulled this off with a little help from the launch of Halo 3 which earned $170 million on its first day and $300 million its first week and ended up spurring a number of Xbox 360 sales along with it.

Those sales totaled 527,000 units of the console in the month of September which was a significant jump from the 276,700 sold the previous month. Nintendo was no slump for September either marking 501,000 Wii units and 495,800 handheld DS consoles. Both figures were also significantly more than in August.

Mobile devices equipped with touch screens, such as the iPhone, are without a doubt a stellar forward progression in device interface that is very intuitive to users, but still have their faults. The technology behind the screens fault due to occlusion and the way in which the touch is mapped to cursor position making it sometimes difficult to make a selection, especially if you have large fingers. Enter LucidTouch, a technology in the works from Microsoft and Mitsubishi Electric lab research.

LucidTouch employs a pseudo transparency that displays the fingers as shadows from behind the screen but not other objects behind it. The shadow effect is essentially a feature designed to make the user experience more natural than simply displaying touch points coming from the back of the screen which might confuse a user as to which finger is associated with which dot, with the shadow transparency the user needn’t think making the UX more intuitive. A passive touch feature allows the user to utilize their thumbs in making direct touch selections from the front of the device which may be used simultaneously with other fingers at the back using the multi-touch ability of the device.

It seems that Microsoft is reacting to the increased competition from Sony and Nintendo for the upcoming holiday season. In anticipation to Sony’s forthcoming price reduction for its PS3 Microsoft will be releasing two Xbox 360 console and game bundles before the end of the month. The Pro Xbox 360 bundle pack ($349) will consist of an Xbox console (20 GB version) and copies of “Forza Motorsport” and “Marvel: Ultimate Alliance” while the 120 GB HDD Elite 360 pack ($449) will ship with the same two games. Essentially you will be getting two free games when you lay down your dollars for either one of these two systems. Microsoft also probably is hoping that the good will generated will in turn get you to open your wallet further and maybe pick up a copy of “Halo 3″ while you’re standing in line.

If you’ve been toying with the idea of making the plunge into an Xbox 360 but haven’t quite yet decided, Microsoft has put out a pretty sweet deal to entice more purchases of the console. If you’ve recently made a 360 purchase you may want to just stop reading here. As a promotion for this holiday season, starting at the end of October Microsoft will begin throwing in GameSpy’s award-winning Forza Motorsport 2, and Marvel Ultimate Alliance for free when you buy an Xbox 360 Premium ($349.99) or Elite ($449.99). Rumors of this release have been circulating for a while and today in this case have been proven true. Another part of that same rumor which was not put to rest involves HDMI out and a disc with Xbox Live Arcade games on a $280 Core console, but it looks like we’ll have to keep waiting for that one.

Microsoft has released an official announcement confirming rumors from earlier this week that Bungie Studios, developers of Halo, and Microsoft will be parting ways and Bungie will become its own independent company.

Bungie and Microsoft together have brought the Halo franchise, exclusively for the Xbox 360, to the gaming phenomenon it is now with “Halo 3″ which recently brought in over $300 million its first week out. This move will allow Bungie Studios to continue to build on their success and expand their games to other non-Microsoft platforms such as Sony’s PS3 or the Nintendo Wii. According to Harold Ryan, studio head for Bungie, it doesn’t sound like they announcing plans to jump the Xbox 360 ship quite yet, however.

Remember when we told you last week that “Halo 3″ made a stunning $170 million dollars worth of sales on its release day? Microsoft is back to blow its trumpet again: the first week of “Halo 3″ sales made the company $300 million dollars. Keep in mind that this game is only available for a single video game console, the Xbox 360. That could be why sales of the 360 have more than doubled in the past week as people open their wallets and purses to jump on the Master Chief bandwagon.

Today Microsoft has officially launched the next-generation Zune media player which consists of three new models launching in November, two of which house flash memory. The release also brings updates to the Zune Marketplace and an associated online social networking site centered around the player and sharing music.

The rumors leaked yesterday turned out to be pretty accurate for the most part. Microsoft is releasing two flash memory-based players in 4GB and 8GB capacities that look similar to the new Nano’s and will retail for $149 and $199 respectively, which is also similar to Apple’s Nano pricing. There is also an smaller, thinner 80GB Zune with a hard drive that will retail for $249 which comes only in black and has a 3.2-inch display. The flash-based models come in black, red, green and pink, no more brown.

As the launch of the second generation Zune, or Zune 2, from Microsoft nears the rumors are flying at full steam regarding pricing and the features that the new media players will house. From what we’ve ascertained the launch is scheduled for October 3rd at midnight and will bring three new models of the Microsoft Zune player along with new features and content on the Zune Marketplace (iTunes for Zunes).

Along with some FCC leaks showing 4GB and 8GB flashed-based Zunes (codenamed “draco”), ZuneScene has the skinny on pricing along with some additional juicy details. These are still in the rumor stages mind you, but it looks like a new 80GB version will be going for $249 with an 8GB model going for $199 and a 4GB model for $149. The 8GB and 4GB models are expected to come in black, red, green or pink but the thinner 80GB will come in only black.

Today Microsoft launched Office Live Workspace, a web-based service allowing users to share their Microsoft Office documents on the web. The new service allows users with an installed version of Office to upload as many as 1,000 documents to a place on the web were they can access it from different locations connected to the internet as well as share them with others.

Office Live Workspace, which is currently in beta and free to use after registering, saves the online documents in a secure environment where users can send invites to others who enter a password and view the documents. Users without Office installed on their computer can still log on and view documents online and even comment on them, but cannot edit them or add new documents.

Microsoft appears to have given in a little bit in response to concerns and complaints about their new Windows Vista operating system. The company’s original plan was to have the original equipment manufacturers (OEM’s) stop selling the Windows XP operating system with new computers as of January 31, 2008. Custom builders would get another year giving them until January 31, 2009. After that it would be all Vista and no more XP.

Since that original plan was made the sales of PC’s with the new Vista OS haven’t been quite as good as Microsoft and the manufacturers had hoped and OEM’s have asked the company to extend XP a little longer. Due to this Microsoft has announced that OEM’s can continue to sell XP pre-installed on their computers for 5 additional months, putting the end date out until June …