Microsoft is launching a program to promote the use of its Windows OS in ultra low-cost PCs, one effect of which will be to limit the hardware capabilities of this type of device, IDG News Service has learned.

Details of Microsoft’s recently announced plan to extend the life of Windows XP for ultra low-cost PCs are trickling out. IDG News got its hands on what it says are Microsoft documents outlining the program for PC manufacturers.

Microsoft confirmed Thursday that it will extend the sales of Windows XP Home to OEMs beyond the current deadline of June 30, 2008, to accommodate a new class of ultra-low-cost PCs (ULCPCs) that are just beginning to pepper the market.

The VAR Guy was guilty of hyping Windows-based Ultra-Portables from startups like OQO a year ago, but he has drastically changed his thinking about the Ultra-Portable computer market. He thinks current market dynamics greatly favor Linux over Windows in the Ultra-Portable industry. Here’s why.

As the release of low-cost laptops based on Intel's upcoming Atom processor draws near, Microsoft is getting boxed into a corner. The software company plans to stop selling most Windows XP licenses after June 30, yet most of these low-cost laptops won't be powerful enough to run Vista when they arrive later this year.

With Microsoft trying to horn in on this one laptop per child program I can see two things happening. One I already mentioned and that is the price will rise. Not just because of the operating system that Microsoft seems intent on forcing on everyone but the cost of the hardware will rise too as windows will not run on hardware that Linux can happily run on.

Joining the array of low cost Linux offerings such as the Asus Eee PC, the Everex Cloudbook , Elonux announced the Elonux One a sub 200 dollar Linux laptop targeted to go on sale in the UK starting in June. We saw similar announcements in the last couple weeks from Acer, who stated that “”Between the second and third quarters, we will have products that address ultra mobility and low-cost segments.” In addition Dell stated that it will “introduce more low-cost notebooks in Asia.” which will augment its Vostro 1000 notebook for sale in China which runs Red Flag Linux.

When Asus unveiled their ultraportable, ultra-cute EeePC in October of last year, they may not have anticipated launching a whole new product category, but judging by the overwhelmingly favorable reaction of users online and strong sales numbers, that's exactly what they've done.

Whether you’re new to hardware as a service (HaaS) or a true HaaS veteran, keep an eye on the emerging NetBook market. NetBooks are low-cost sub-notebooks from companies like Dell, Asus and Sylvania. They typically cost $275 to $400 or so, and run Windows or Linux.