Microsoft is ready to start expanding its AdCenter engine to allow at least some publishers to include contextual advertising from Microsoft on their site.

According to a letter detailing the program and published on TechCrunch, Microsoft is doing a pilot program that allows smaller publishers to use contextual advertising from Microsoft, putting it potentially in competition with Google’s AdSense and Yahoo’s publisher network.

Microsoft Corp.’s Xbox 360 video game console will be able to stream thousands of movies over the Internet, thanks to a deal announced Monday with Netflix Inc. that highlights the way gaming devices are expanding into all-purpose home-entertainment hubs.

The arrangement, revealed at the E3 Media & Business Summit in Los Angeles, will let Netflix subscribers stream 10,000 movies and TV shows to Xbox consoles for viewing on television sets, beginning this fall. Xbox had movies and shows available for download before, but only half as many.

“This generation of consoles will change the face of home entertainment more than any other generation before,” said John Schappert, corporate vice president of Microsoft’s interactive entertainment division.

As Microsoft vies for a stronger foothold in the living room, so is rival Sony Corp., which has tried to make its PlayStation 3 into a broader entertainment device by including Blu-ray high-definition DVD players in the consoles.

The deal with Microsoft also marks an important expansion for Netflix, whose 18-month-old streaming service - which supplements its DVD-by-mail program - has been available on computers instead of TVs, unless consumers had bought a small streaming device from a Netflix-backed startup called Roku Inc.

Microsoft already has sold more than 10 million Xbox 360 consoles in the United States. More than half of Xbox 360 owners pay $50 a year for a “gold” membership, which will be required for access to Netflix’s “Watch Instantly” library. They also must subscribe to Netflix, which charges $9 per month for the least expensive plan that includes unlimited streaming.

In partnering with Microsoft, Netflix may be building the streaming service to prepare for the day when the convenience and widespread availability of video downloading kills its DVD-by-mail service.

Microsoft is now acknowledging it screwed up with its initial launch of Windows Vista, and is ready to try again.

“We broke a lot of things. We know that, and we know it caused you a lot of pain. It got customers thinking, hey, is Windows Vista a generation we want to get invested in?” So Brad Brooks, Microsoft’s VP of Windows Vista consumer marketing, fessed up publicly this week.

Speaking at a keynote address at Microsoft’s annual Worldwide Partner Conference, Brooks signified that Microsoft was ready to admit mistakes and reposition itself to tell a better story about Windows Vista, to counter attacks by rival Apple and let customers know that Vista is finally stable and ready.

Microsoft on Monday sent out a reminder that it would distribute a new version of Service Pack 3 for Windows XP through its Automatic Update service “shortly.”

Nick MacKechnie, senior technical account manager at Microsoft New Zealand, said in a company blog post that if IT administrators wanted to prevent the automatic installation then they should download and deploy the Windows Service Pack Blocker Kit from the company’s online download center, or deploy update management software that provides full control over updates deployed to computers on a network.

On Wednesday, Microsoft announced new security features within the upcoming release of Internet Explorer 8 Beta 2. The features are designed to combat the rising tide of drive-by downloads and malicious scripts contained within carefully crafted links embedded in e-mail and Web pages. Most of the new features require systems to be running Windows Vista SP1 or Windows XP SP3.

Perhaps the most anticipated addition is Internet Explorer’s new antimalware protection. Opera 9.5 and Firefox 3 both recently added antimalware protection. Safari has so far not announced plans for similar protection. Using mostly its own antimalware technology, Microsoft will block emerging threats by masking the entire IE 8 browser screen with a warning to users. The addition of malware protection to the existing antiphishing protection will be re-branded as the Microsoft SmartScreen filter.

IE 8 Beta 2 will have a Cross Site Scripting (XSS) filter, preventing scripts within a link from executing on the browser.

Microsoft Corp. will begin selling its Office programs to consumers on a subscription basis starting mid-July, in a bid to reach thrifty PC buyers who would otherwise pass on productivity software.

The move may also set the stage for Microsoft to offer its consumer-oriented programs as “services” over the Web, by acclimating people now to the new pricing model such a shift could require.

The software bundle, which also includes Microsoft’s Live OneCare computer security software, will be sold at nearly 700 Circuit City stores for $70 per year.

Bryson Gordon, a group product manager for the Office group, said in an interview that the agreement with Circuit City Stores Inc. is not exclusive, and that the bundle will be available at other retailers and on PCs sold by the likes of Dell Inc. in the future.

Microsoft Corp said on Tuesday it had agreed to buy Powerset, a start-up that is working on a new class of Web search that relies on insights from linguistics rather than simple keyword strings.

Satya Nadella, senior vice president of Microsoft’s Search, Portal, and Advertising business, confirmed the purchase in a statement, following months of rumors that they were in merger talks. Financial terms were not disclosed.

Powerset’s technology breaks down the meaning of words into related concepts, freeing users from having to type the exact words they want to find. This emerging approach to Web search, known as semantic search, has fascinated researchers for decades but proved frustratingly difficult to commercialize.

Microsoft Corp plans to cut the price of its best-selling Xbox 360 Pro model by $50, to $299 in the next few weeks, the Hollywood Reporter reported citing anonymous sources.

The price cut for the Xbox 360 model with the 20 gigabyte hard drive will come before the video game industry’s biggest trade show, E3, taking place in Los Angeles on July 15-17, the report said.

Rumors of the Xbox price cut swirled on popular gaming blogs Joystiq and Kotaku last week. The two sites received snapshots of Kmart and Radio Shack flyers advertising the $299 price.

A Microsoft spokeswoman declined to comment on the report.

Microsoft’s June security updates were bad news for online criminals who make their living stealing password information from online gamers.

The company’s Malicious Software Removal Tool– a program that detects and removes viruses and other bad programs from Windows machines– removed game password-stealing software from more than 2 million PCs in the first week after it was updated to detect these programs on June 10.

One password stealer, called Taterf, was detected on 700,000 computers in the first day after the update. That’s twice as many infections as were spotted during the entire month after Microsoft began detecting the notorious Storm Worm malware last September.

“These are ridiculous numbers of infections my friends, absolutely mind-boggling,” wrote Matt McCormack, a spokesman with Microsoft’s Malware Response Center, in a Friday blog posting.

Between June 10 and June 17, Microsoft removed Taterf from about 1.3 million machines, he said.

Microsoft has released the first finished version of the software development kit (SDK) for the Open XML Format, the default storage format for Microsoft Office 2007 and the basis for a standard that is currently awaiting publication by the International Organisation for Standardisation (ISO).

Open XML SDK 1.0 , available from the company’s website, is designed to allow developers to produce code enabling their applications to create, access and manipulate Open XML documents, Microsoft said.

The SDK includes an application programming interface (API) simplifying the creation of code for searching documents, creating documents, validating document parts, modifying data and other tasks, Microsoft said.

The API can be used in any language supported by the Microsoft .Net Framework, the company said.

Microsoft has filed 21 lawsuits in US Federal courts as part of an effort to stop those who continually pirate its software.

The suits span 14 states and target people and businesses that have allegedly sold pirated copies of Microsoft software.

Eight of the suits target companies that Microsoft refers to as “repeat offender software pirates”. The eight firms had already been sued by Microsoft for selling counterfeit software.

Several of the suits also address pirated software pre-loaded onto PCs and then sold as bundled software, a process known as hard-disk loading.

Microsoft Corp. and Harrah’s Entertainment Inc. introduced a high-tech interactive bar table Wednesday that lets patrons order drinks, watch YouTube videos, play touch-screen games and even flirt with each other.

The tables offer Harrah’s a new way to track its customers’ habits and behaviors, adding to its sophisticated costumer rewards program that tracks users’ gambling habits.

“Of all the goodies up our sleeves lately, this is one of the most dramatic,” Tim Stanley, chief information officer of Harrah’s, told The Associated Press. “The range of opportunities are fairly limitless.”

The six rectangular tables with built-in 30-inch flat screens using Microsoft Surface technology were installed in a lounge at the Rio All-Suite Hotel & Casino in Las Vegas, with custom applications built for Harrah’s.

A spokeswoman for Microsoft said the units sold for a base price of $10,000.