I agree with Andy. They could have back-ported the rest of the Windows Phone OS to Zune, turning it into a full-fledged PMP and current app platform.

The announcement hasn't been made officially yet, so who knows, maybe they'll spin something new. There's likely a lot going on behind the curtain to influence this decision as well.

Do they keep pouring money into a brand that's not making the required returns? Do they keep this non-phone version of the platform out of the hands of their OEMs?

I can see MS moving to a more traditional (for them) software and spec model for the PMP market. Simply not having a PMP is a very foolish move. The iPod has helped the iPhone gain traction and it plays a large part in the overall iOS landscape.