When Microsoft started laying folks off in January, we were afraid the Zune might be directly affected; it was. The big wigs at Redmond separated the Zune department into hardware and software teams. The bulk of the developers went into the software and services department where they are headed-up by the same suit that runs Microsoft’s Mediaroom and Media Center TV businesses. Interestingly enough, the hardware geeks are now working with the WinMo guys. We kind of figured it would have been the other way around.

The rest is here:
Microsoft Splits Up Zune Team, New Hardware Still Coming Though