Microsoft has told Kotaku that the Windows Phone 7 is their portable console.
The director of mobile and PC gaming at Microsoft, Kevin Unangst, says that there will be no portable gaming device. At least nothing dedicated- Win Phone 7 is it.
It's a direction that's certainly working for Apple with the iPhone. But consider that even Sony, with their PS Phone that will certainly be officially unveiled soon- is still going to follow up the PSP with a PSP2. People do want mobile consoles, but the bottom line is that Microsoft just seems to have little to no interest in entering the portable market.
It should be said that, though Sony is still trying, the Nintendo stranglehold really doesn't make the arena all that appealing. Still, a portable Halo is very, very, tempting and if the Xbox company were to produce a portable console that carried over a real, dual-stick, FPS experience- they might just have a contender. Seems like they're just not interested though...