Eee PC running Windows 7 at WinHEC

LOS ANGELES -- One problem with Windows Vista is that its system requirements are too much for the emerging class of "netbooks" -- small, portable computers that typically use solid-state flash storage rather than traditional hard drives. That's why computer maker ASUS went with Windows XP instead when it started offering the Microsoft operating system on its popular Eee PC earlier this year.

But today at Microsoft's Windows Hardware Engineering Conference, the company made a point of demonstrating Windows 7 running on an Eee PC, as a result of the improvements made under the hood of the next operating system.

The demonstration model had 1 GB of RAM, 16 GB of SSD flash storage, and a 1.6 GHz Intel Atom dual-core microprocessor. During the demo, Windows chief Steven Sinofsky and Microsoft's Mike Angiulo took a picture with a digital camera and plugged it into the machine, bringing up Windows 7's centralized "Device Stage" device management area.

"You don't have to go down-level, you don't need anything stripped-down," Angiulo said. "This is a full Windows experience on this PC ... on the 16-gig SSD, with room to spare."

So the technical challenge apparently has been met. What remains to be seen is how the emerging netbook market will affect Microsoft's business. In many cases on netbooks, Microsoft is competing head-to-head with the open-souce Linux operating system.

During the company's recent quarterly conference call, Microsoft's financial team pointed out the lower average selling price of Windows for netbooks as one reason for softer revenue from Windows pre-installed on PCs. However, they said, it remains to be seen if netbooks will cannibalize the traditional PC market or provide an opportunity for additional sales.