Microsoft and Apple just always seem to be at the opposite ends of battles.
This time, Microsoft's entry in to the MP3 player market, the Zune, has debuted with much lower cost than the iPod. The article I link below says that the 4 GB iPod was selling for $135, while the 30 GB Zune was selling for $134. Think about that - 7 times the storage, Microsoft supported...we're not talking something from some unknown company.
The interesting part is that last year (2006), the Zune was considered a bomb - very disappointing sales. Microsoft's strategy now seems to be to drop prices to catch up to Apple.
Who shall win? Who knows. In general though, when two big companies like this fight it out, the consumer wins because prices fall.