Last week, we heard a lot of new information about the OLPC project. We first heard that the units would cost more than expected (big surprise!), bringing them from $100 to $175. We also heard that supposedly, Windows XP Starter Edition could appear on these units, possibly to help them reach markets like U.S. schools. While the price increase is assuredly true, the “deal” between the OLPC project and Microsoft is definitely false. Walter Bender, president of Software and Content for OLPC, has stated quite firmly that no such plans exist and no demand for it has been seen:

” ... there is no agreement in place between OLPC and Microsoft to offer XO laptops with any version of Windows. Bender also indicated that Microsoft has not contacted OLPC regarding its $3 software bundling program, nor have any governments requested that the XO be outfitted with Windows. In short, there is no existing collaboration between Microsoft and OLPC aimed at outfitting the XO laptop with Windows.”
He also went on to further say they are an open-source shop and have no intentions of trying or using Windows on the OLPC platform. It seems the rumors may have begun due to the fact Microsoft was one of the many developers present at OLPC developers programs. Given that, however, it's still clearly possible that Microsoft may choose to develop software for the OLPC – just not the OS.