Apparently, it was NOT a portable gaming console from MS even though the Transmeta CPU would be "perfect" for it.
http://seattlepi.nwsource.com/business/271014_software22.html
Remember Transmeta Corp.'s secretive deal to develop a version of its Efficeon chip for Microsoft? The mystery of that project has now been solved -- and it's not a portable Xbox, or anything else along those lines. The specialized chip was designed for Microsoft's new "FlexGo" pay-as-you-go initiative for PCs in developing nations.
The microprocessor company has been working for the past year on a high-security, power-efficient chip for Microsoft's new "FlexGo" pay-as-you-go PC initiative in developing nations.
The rest is here:The FlexGo project follows a cell phone model -- with the PC available at a discounted price and computer makers or telecommunications firms making money over time through subscription fees or prepaid cards.
http://seattlepi.nwsource.com/business/271014_software22.html