The backbone of the rumours is Nokia's new CEO, Stephen Elop. He left Redmond on good terms, and probably loaded with contacts and ideas on how to bring his old and new employer together. Last week, Elop stated that Nokia will set individual strategies for its low, mid, and high-priced mobile phones, while also saying Nokia may join existing ecosystems under this new scheme. Considering his Microsoftian past, Windows Phone 7 would make sense.
Nokia would be a major channel for Microsoft, and I could definitely see select, high-end Nokia phones running Windows Phone 7. Nokia has always had great hardware; it's usually been the software part of the equation where the Finnish giant fails. I'm currently reviewing an HTC HD7 with Windows Phone 7, and I can assure you - the software is great. WP7 is fresh, new, innovative. It makes my iPhone look like an outdated Fisher Price toy.
The rumour now is that Nokia will drop Symbian or MeeGo in favour of Windows Phone 7, and announce said switch next week, Februari 11. It would be my guess that if this is true, MeeGo would be the one to be dropped. Symbian is still widely popular and can run on lower-specced devices as well, which is where Nokia still has a lot of presence. WP7 would then become the high-end choice.
Nokia and Microsoft have worked together before, bringing Office to several business phones. All this is not as strange as it seems - although I'm still skeptical. We'll see next week.