Not sure of the source of these rumours, but it appears that they're gaining pace and plenty of coverage. Having just completed its long drawn out Yahoo tie-up whispers are that Microsoft are looking to snap up Palm to bolster its flagging smartphone division.
As Windows Mobile posted a year on year sales increase and comfortably outsold the iPhone last financial year I'm not altogether convinced that the smartphone division is flagging, especially with two new versions of the OS due in the next year.
However lets look at the motivation behind such a deal. Palm is cheap to buy right now, even after the boost that the Pre has given to its market cap. Its also got a product which is seen as a valid competitor to the iPhone as well as having a solid base of loyal customers. Those good points have to be weighed against the difficulty (conceptually anyway) of Microsoft selling a Linux based OS. Never mind the work required to convert it into a form that can be easily sold to its hardware partners. Or how it will impact on Microsoft's other mobile platforms.
On balance I'd say that we're looking at wishful thinking on the part of some analysts and possibly Elevation Partners who have serious investments to recoup from WebOS.
But I suppose stranger things have happened...