Break down the functions
The touch interface: Tech developed for Surface/Windows 7/Windows Phone 7 Series, all tech thats been seen/touched/released. Microsoft have the touch capability to do this most definately.
Hardware Design: They're releasing the Pink feature phones in the US, so clearly moving into hardware isn't the anti-christ anymore
Cool looking screen crop/drag: just a touch version of snipping tool already available to the windows kernel, easily ported to Windows CE
Zune interface: The left screen is completely following the Zune interface when looking through picture albums etc
Why can't this be released?