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Last week, Asus announced that its low-cost Eee PC will come bundled with Windows XP. Now, the world's largest software company is working to adapt a basic version of XP so that it is compatible with the nonprofit One Laptop per Child (OLPC) Foundation's small green-and-white XO laptop.

"We're spending a non-trivial amount of money on it," says Microsoft Corporate vice president, Will Poole. "We remain hopeful with our progress to date, we still have significant work ahead to finalise our analysis and testing processes. At the end of the day, there are no guarantees."

The OLPC Foundation, a spin-off from the Massachusetts Institute of Technology, plans to start producing the $188 machines in China next month and eventually manufacture millions a year for elementary school children in developing countries in Asia, Africa and Latin America.

The foundation is also selling the machines in the US and Canada for $400 apiece through a fund-raising campaign.

Third world exposure<

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The laptops were designed specifically to run Linux. If the machines run only Linux, Microsoft will lose an opportunity to expose tens of millions of children worldwide to Windows.

If the foundation is able to meet its goal of producing millions of laptops for school children around the world and they are all loaded with Linux software, then they would end up being more comfortable with those programs than with Windows, says Wayan Vota, who publishes a blog that monitors the project.

"People will realise there is an alternative to Windows and they might like it better," Vota says.

However, Microsoft warns that the XO might not even be powerful enough to run Windows. "We still have plenty of work to do in determining if the highly constrained performance, power, and memory in the first generation XO laptops will be compatible with Windows and popular Windows applications," Poole says.

Originally dubbed the $100 laptop, which is the group's target price for the machine, the XO features a string pulley to charge its battery, a keyboard that switches between languages, a digital video camera and wireless connectivity.

The laptop's designer, Mary Lou Jepsen, said in an interview earlier this month she expects the price to drop in the first quarter of next year because prices of memory tend to fall dramatically during that period.

The computer requires just 2 Watts of power compared with the typical laptop's 30-40 watts and does away with hard drives, relying instead on flash memory and four USB ports to add memory devices.