Correction:
The Denver Post did not correctly summarize Mehdi's speech. The $50 iPod statement was taken out of context.
Read about it here. It sounded to ambitious, but you never know with Microsoft. Still, it made for a great headline.

Microsoft says to start selling portable music players for about 80% less than Apple's iPod.

The Microsoft-branded devices will "look and feel" as good as the iPod for as little as $50, said Yusuf Mehdi, corporate vice president of MSN at Microsoft Corp., at the Goldman Sachs fifth annual Internet Conference in Las Vegas.
See full quote at Denver Post.

Microsoft iPod killers are supposed to hit the market later this year along-side a MSN Music Download Store, which goes up against iTunes.

On SeattlePI another quote of Mehdi, where he states that the iPod is only in 4% of US households today.

So Micrsoft's two major new targets are Apple in the music download business and Google in the Search Engine arena.