Its enterprise brands have all been succeeding quite nicely -- Windows Server, SQL Server, Visual Studio, Office, SharePoint. But in the consumers' mind, Microsoft took a beating last year. How will Ballmer recover?

7:50pm PT: They have moved over to a surface controller that will integrate with the tablet as well as a smartphone. They're showing off an e-ink style mockup as well, this is followed by typical Ballmer comment about how excited he is about everything. Gary Shapiro: "Bill left you a big sweater to fill, Steve, but I think you've pulled it off!" And with that, Tripod comes back on, to play out the quickly vaporizing crowd.

7:36pm PT: He's going to show off a game created in Kodu Game Creator with a pre-teen girl creating a game. In scrolling through the command menus super fast, Robbie Bach looked at the audience, and said "I'm glad you're doing this!"

7:31pm PT: He's showing off a Windows Mobile Total access app that will allow Windows Mobile devices to control Netflix queues.

7:27pm PT: Xbox live Primetime will be launched in the Spring...it was delayed from it's tie-in with the New Xbox Live experience, but now Robbie Bach is showing off a live version of Xbox Live Primetime's 1 vs. 100 that has been discussed since the NXE launch.

7:24pm PT: Two new titles from the Halo universe will come this year, the first T-rated Halo (non FPS) game, Halo Wars, which will be available Feb 28. a downloadable version will be available on Feb 5. The second is called Halo 3 ODST

7:22pm PT: Xbox had the "best holiday season ever in the best year ever." It's not just about the console and games, but it's about Xbox Live, over 17 million members which added over 3 million in the last three months of 2008. One guy in the audience gave a big "WOO!"

7:19pm PT: Robbie Bach is now on stage, to talk about connected entertainment with a special focus on television. First he will give a recap of what has been achieved in 2008. One of which is Ford and Sync with Tellme. Another is Zune, talking about the growth of Zune social and the Zune Pass development that lets you keep 10 songs a month. Now he's talking about Mediacenter and Mediaroom. ("a growth of over 250% over last year")

7:14pm PT: Now Tripod has taken the stage. (it's a joke band)

7:13pm PT: Another kind of goofy feature was shown off, that links in-chat emoticons to the user profile photo. So when you're in a chat and make a :( face, your profile picture changes to a picture of yourself making a sad face (if you so choose).

7:11pm PT: Showing off a "coming soon" feature to Windows Live...the "quick add" pane. This right hand pane can grab information from Live Search and paste it into email instantly. The example shown was to put the address of a restaurant into an email with just one click.

7:08pm PT: Now showing off the recent Windows Live update, with special focus on the "what's new" feed. This has become especially relevant now that they're partnered with Facebook.

7:04pm PT: In demonstrating the "homegroup" home networking function, the "play to" function was shown, where one PC can access files from another networked PC and play it on yet another networked device, like the Xbox 360...and she briefly mentioned sending files to a Roku box.

7:00pm PT: The demo just showed the half-and-half window screen snap, where two different IE windows can automatically be fitted to comprise exactly half of the screen.

6:57pm PT: Finally, Microsoft is announcing a partnership with Verizon so all verizon phones will come with Microsoft Live Search as the default search. A demo of the Windows 7 beta is about to commence.

6:55pm PT: Windows Live has three big announcements today. The worldwide availability of Windows Live essentials....it's free! and it works on the Windows 7 Beta. They're integrating Windows Live and Facebook, and third, Dell will be the first major PC maker to pre-install Windows Live essentials on all of its PCs

6:53pm PT: The beta will be available worldwide FRIDAY, JANUARY 9th.

6:52pm PT: Windows 7 is now the topic of discussion. He's announcing the Beta of windows 7

6:50pm PT: Ballmer just said "I AM A PC" because there is more choice at more price points for people struggling and choosing their products carefully.

6:47pm PT: Windows is the way these three things will happen. Windows has become the language that over a billion people speak across the globe. We will look at some phones and PCs that are making this possible. a long list of manufacturers comes up and the giant screens show products from Samsung, Dell, HP, HTC, Lenovo, Moneual, Sony, Sony Ericsson, and Toshiba

6:45pm PT: The third is interconnectivity, he mentions the "cl-o-o-u-u-d" while making a pseudo-crystal ball rubbing gesture.

6:43pm PT: The second major area is the way in which we will interact with our computers. Natural user interfaces such as speech, gesture and handwriting will become the normal way we interact with our three screens. UIs will evolve into more intuitive and natural states.

6:42pm PT: 8 Billion dollars invested in R&D, "Why do we continue to invest, and be optimistic?" Innovation drives us forward despite economic conditions. There is so much more opportunity ahead of us. I frame this in three main areas, the first of which is in the convergence of the "three screens," (Phone, PC, and TV)

6:39pm PT: "Today, our world, our nation, and our industry face some really big challenges. All of us. We're all feeling it." says we may be tempted to scale back our ambition in these recession conditions, but he believes there's no turning back from advancements in our digital life.

6:35pm PT: Among the pre-Ballmer footage is footage of the new Xbox experience, there is a small cheer from a section of the crowd.

6:34pm PT: This is Ballmer's first keynote as Microsoft's CEO. What you may not know about him is that he got a perfect 800 on the math section of his SATs...before he takes the stage, a video will be shown.

6:32pm PT: Gary Shapiro is giving his customary opening speech, talking about the upcoming keynotes, and introducing Steve Ballmer.

6:28pm PT: Microsoft appears to have wheeled in the beatboxers to warm up the crowd.