An upcoming version of Microsoft Corp.’s Internet Explorer browser will let users add lists of sites that they don’t want tracking them, a peace offering amid uproar over the sneaky ways that websites watch their users as they bounce around the Internet.

The new feature, however, won’t be as sweeping as a “do not track” option that the Federal Trade Commission is proposing to limit advertisers’ ability to do that. Users will have to create or find their own lists of sites they want to block.

And the feature won’t be automatically turned on when it debuts with the release of Internet Explorer 9 early next year.

Part of the reason for the uproar over tracking is that it’s hard to tell which sites you’re sharing information with. Websites use many third-party advertising partners, and some may use shady surveillance schemes, perhaps without the knowledge of the websites.

Microsoft Corp launched a fully online version of its popular Office suite of applications on Tuesday as it looks to extend its customer base and beat back rival Google Inc.

The new service, called Office 365, is available as a test from Tuesday in 13 countries, and will be on sale on a subscription basis worldwide next year.

Combining some of Microsoft’s existing cloud-based services, it will be available through most browsers, including Mozilla’s Firefox, Apple’s Inc’s Safari and Google’s Chrome, and can be used on mobile devices such as Research in Motion Ltd’s BlackBerry and Apple’s iPad.

That means customers can get access to Office programs like Outlook e-mail, SharePoint websites and simplified versions of Word and Excel without installing software, from virtually anywhere. Customers get access to more features when the software is also installed.

The Microsoft Corp executive who took over the role of chief software architect from Bill Gates is to step down, following a tenure in which the Windows-maker lost ground to Google and Apple.

Chief Executive Steve Ballmer said Ray Ozzie would not be replaced, raising questions about the leadership and direction of the world’s largest software company after a string of high-profile departures.

Microsoft Corp. is suing Motorola Inc. for infringing on its smart-phone patents.

The software maker on Friday said Motorola phones that use Google Inc.’s Android software step on Microsoft technology. The functions in question include synchronizing e-mail, calendars and contacts.

Microsoft filed its lawsuit in the U.S. District Court for the Western District of Washington. It also filed a claim with the International Trade Commission.

Microsoft has taken another step toward a holiday release for its next generation of smart phones.

The software maker isn’t giving an exact launch date for Windows Phone 7. But the company says the tools programmers will use to build Windows Phone 7 applications are complete.

It says developers can start submitting apps to Microsoft for approval in October.

Microsoft Corp. unveiled the “beta” test version of Internet Explorer 9 on Wednesday, the first of a new generation of Web browser programs that tap into the powerful processors on board newer computers to make websites load and run faster.

IE9, which is free, also arrives with a more minimalist look and a few new tricks that start to blur the distinction between a website and a traditional desktop application.

Following the lead of Google Inc.’s stripped-down Chrome browser, Microsoft’s IE9 comes with far fewer buttons, icons and toolbars cluttering up the top of the screen. Its frame is translucent, and as people browse the Web, IE9 can be subtly adorned with small icons and signature colors of the websites being viewed.

Microsoft Corp. is bringing its video-game expertise to the forthcoming Windows Phone 7 line, an attempt to capitalize on the success of the Xbox 360 as the software maker tries to compete with Apple Inc.’s iPhone.

Microsoft says a dedicated group inside of Microsoft Game Studios will develop video games for Windows phones, help outside game publishers and scout out small, independent game makers. Video game companies will be able to use the same tools to make a game for a Windows phone or for the Xbox 360 console.

The company is also announcing a preliminary lineup of games that will be available when the phones go on sale during the holidays. The list includes popular Xbox 360 console games such as “Halo Waypoint,” “Crackdown 2: Project Sunburst” and “Guitar Hero 5,” as well as newcomers including “ilomilo,” a puzzle game in which players try to unite cute little cartoon critters separated by increasingly tricky paths and mazes.

New figures released by Microsoft shows that nearly half of all Windows 7 installations are running on the 64-bit version of company’s flagship operating system (OS). Windows Communications Manager Brandon LeBlanc revealed the figures on the official Windows Team Blog late last week:

“As of June 2010, we see that 46% of all PCs worldwide running Windows 7 are running a 64-bit edition of Windows 7.”

LeBlanc noted that this represents a huge increase in favor of 64-bit Windows. Three-and-a-half years after its release, Windows Vista saw only 11 percent of PCs in the world running the 64-bit version, while the situation with Windows 7 is one in which “running a 64-bit OS is becoming the norm.” Not surprisingly, less than 1 percent of 64-bit Windows XP machines are installed.

Microsoft Corp will begin selling its “Kinect” motion-sensing game system on November 4, before the crucial holiday season, hoping to lure new and casual players to the Xbox and steal a march on rivals Nintendo Co Ltd and Sony Corp.

The world’s largest software vendor, which has ambitions of making its Xbox 360 not just a gaming device but a hub of home video and Web entertainment, will also begin selling a smaller, same-priced version of the console this week.

Microsoft would not say how much Kinect — which plugs into Xboxes and lets players control games with body and hand gestures — will sell for, though analysts’ estimates range from $50 to $200. Executives said 15 titles, including one from Ubisoft, will be available at the time of launch.

As part of its regular Patch Tuesday, Microsoft released an update for its various toolbars, and this update came with more than just documented fixes. The update also installs an add-on for Internet Explorer and an extension for Mozilla Firefox, both without the user’s permission. As you can see in the Windows Update screenshot above, Microsoft does not indicate that the update will install anything for either browser. It’s also not really clear what the installed extension actually does.

To make matters worse, the update was marked “Important” instead of “Optional,” which means it was more likely to be installed either automatically (if the user has Automatic Updates on) or manually when the user clicks Install (Important updates are checked by default).

Web search group Google Inc is phasing out internal use of rival Microsoft Corp’s Windows operating system because of security concerns following a Chinese hacking incident, the Financial Times reported on Tuesday.

Citing several Google employees, the FT said the decision to move to other operating systems including Apple Inc’s Mac OS and open-source Linux began in earnest in January after Google’s Chinese operations were hacked.

Internet security firm McAfee Inc said at the time the cyber attacks on Google and other businesses had exploited a previously unknown flaw in Microsoft’s Internet Explorer browser, which was vulnerable on all recent versions of Windows.

Apple has surpassed Microsoft as the largest technology company in the world by market capitalization.

Apple’s move comes as the company’s iPhone, and now its iPad tablet computer, have taken on more of the personal computing tasks once handled by computers running Microsoft’s Windows operating system and other programs.

Market cap is the dollar value of a company’s outstanding shares. On Wednesday, Apple Inc.’s shares slipped $1.11 to close at $244.11, making its market cap about $222 billion.

But Microsoft Corp.’s stock fell $1.06, or 4.1 percent, to close at $25.01, for market cap of about $219 billion.