Microsoft still seems to be holding out hope that they can turn things around with the Zune. Despite the fact that revenue for the Zune was down an estimated $100 million since the previous quarter, Microsoft has continued to hint that they had something that could make the difference.

Our moles are telling us that the difference could be a new Zune HD. The Zune HD is said to be a touch screen device that will be able to deliver 1.85:1 aspect ratio 720p video. The underground dwellers tell us that Microsoft has been working on the Zune HD for some time, and they have been trying to get the pricing right, as they feel that this will ultimately be the difference in competing against the iPod Touch.

While Apple clearly has the lion’s share of this market space, a portable HD device that could deliver 720p quality might turn some heads, but it is hard to say if it will be able to gain a serious foothold against the iPod. Many analysts continue to believe that the Zune’s time has come and gone and it is unlikely that Microsoft would be able to gain enough converts, no matter what the price might be.

Our moles tell us that if manufacturers in Asia can meet Microsoft’s price targets, then Microsoft is likely to launch the Zune HD in the fall for the holiday season. We suspect that if Microsoft does not revamp the Zune product offerings for the holiday season this year, it is likely that the company will abandon the product early next year.