One of the landmark agreements that Steve Jobs got from Bill Gates in the last decade was the pledge that Microsoft would continue to develop Office for the Mac over an additional five years. That agreement has since been extended, and Office 2008 is their latest Mac product.

At the same time, some speculate that Microsoft only made this agreement to settle some long-standing lawsuits involving Apple and, later, with an eye towards possible antitrust repercussions if they discontinued Office.

Indeed, although there are plenty of terrific word processors and other applications that can, in part, replace the various components of Office, it’s still required in many businesses. A Mac version of Office is the door opener that allows Apple to penetrate many enterprise markets that it might not otherwise be able to enter, although they don’t really play terribly much in that space.

But certainly the Windows switcher can feel comfortable in having Mac versions of the most-used Windows application. Indeed, the Mac version of Office is a huge cash cow for Microsoft. Certainly support costs are far less than the Windows version, and the Mac Business Unit certainly works very hard to deliver as good a product as they can.

They are, though, constrained by corporate policies. Worse those policies continue to put the Mac at a huge disadvantage.

In fact, Microsoft’s Mac product portfolio has shrunk over time. Once, you can actually get a Mac version of Internet Explorer. In fact, that was a part of the agreement with Apple that included Office’s continuation. Apple made Internet Explorer the default Mac browser.

How times have changed. Apple now has Safari, and the only version of Internet Explorer you can get is on the Windows platform. Of course, that may be a plus, as it is notorious for security problems, and Web designers have fits trying to make their sites compatible with Internet Explorer without losing accurate rendering with other browsers.

Now that Internet Explorer’s market share is suffering at the hands of Firefox and, yes, Safari, Microsoft is suddenly touting adherence to Web standards in its promised next version.

On the Mac side of the fence, the Windows Media Player is history, with the technology being passed off to a third party plug-in, Flip2Mac, from Telestream. Even then, some Windows Media formats, such as the ones that are required for its copy-protected files, remain incompatible. So if a Mac user wanted, for some strange reason, to buy a Zune, they’d also have to run Windows on their Macs to be able to download content from the Zune Marketplace.

As far as Office is concerned, certainly the Mac BU has done a neat job in making it as compatible as possible with the Windows version. But Office 2008, the first Universal binary version, has some peculiarities. One of the lesser issues is the fact that its performance suffers on a PowerPC Mac compared to Office 2004. In talking with Jim Galbraith, Macworld’s Lab Director, he said he doesn’t recall any other Universal applications that exhibit that sort of performance hit.

Indeed, launching Word 2008 is extremely slow, but that’s true on an Intel-based Mac too. I plan to try it soon on one of the new Mac Pros, incorporating the updated “Harpertown” version of Intel’s quad-core Xeon processors. Then again, why should anyone need such a powerful computer to get decent performance from a mere word processor?

In all fairness, this is the first release of Office 2008, and it’s very possible Microsoft will release an update that will attack performance deficiencies.

But there is one other deficiency that isn’t going to vanish so easily, and that’s the lack of support for Visual Basic for Applications. That feature allowed you to create macros in your Office software, and have them work cross-platform. What this means is that if you open, say, an Excel or Word document with an embedded macro that performs a critical automated function, that function won’t run.

True, Microsoft provides enhanced support for AppleScript, but there’s no direct translation. This can certainly present a huge obstacle to using Office 2008 in some work situations, and sales might just suffer.

Would Microsoft then discontinue Office because of slumping sales, even though it was the lack of a significant feature that reduced demand?

Now the Mac BU says that porting VBA to a Universal binary would have postponed the release of Office 2008 by up to a year, and it was already late. I don’t know if this is just corporate spin, or an honest response. But wouldn’t it make sense to simply run VBA under Rosetta for the time being, and release a Universal update later on?

Just asking.

Now I can’t say that Microsoft is indeed crippling its Mac products with the long-term plan of ditching the platform. That might be too conspiratorial. But you have to wonder what they were thinking, and I am definitely concerned about the whole thing.

You know that Apple will never reveal all the down and dirty details of how it actually designs products. After all, they don’t want the likes of Dell and Microsoft to learn any of the intimate details. On the other hand, if you can believe Steve Jobs, the MacBook Air went through some 100 prototypes before the final version was approved for manufacturing.

Now I’m not saying those 100 prototypes, if they existed, were full-blown working models. Perhaps there was some CAD sampling on computers before physical models were built.

So what decisions did Apple make going into the project? While my tea leaf reading doesn’t work so well these days, I think I have a pretty good concept of some of the marching orders Apple’s engineers had to consider. It’s pretty clear from the way it turned out.

But the actual conversation that took place is a fable. So what if Steve Jobs and Jonathan Ive got together over tofu burgers and salad and decided to take the standard MacBook and make it two pounds lighter? In order words, the five-pound note-book becomes a three-pound note-book, but has to retain the very same screen size and keyboard style.

In other ways, designed from the top down, more or less. This, however, makes the MacBook Air highly different from other thin and light note-books that have somewhat smaller screens and keyboards. But it also means that some serious compromises had to be made to get it all of this to fit into a slimmer case. I also suppose Apple didn’t want to reduce processor horsepower too much, and certainly they wanted decent graphics capability and battery life, so you can run your digital lifestyle applications without making a huge sacrifice.

How much circuitry can they cram into that thin case before there’s no more room? Certainly there has to be sufficient space for proper cooling. Now as far as the processor is concerned, Apple somehow jawboned Intel into delivering a new design customized, say they say, for Apple’s needs. This isn’t to say that the same ultra-miniaturized circuitry isn’t going to be available to the competition, but Apple got first digs, which is why Steve Jobs was able to introduce his new best friend, Intel CEO Paul Otellini, at last month’s Macworld Expo keynote.

Obviously, Apple had to throw something out? The optical drive, for example, but how can its functions be replaced? What if you have to reinstall the operating system or software? Sure, having an accessory drive is a decent solution, but it also defeats the aura of ultimate portability. A docking station may be a possibility — as it is on Windows note-books — but that just means another large and awkward appendage that you either from to drag along or leave at the home or office. That certainly doesn’t fit Apple’s design goals of having a system that’s as self-contained as possible.

So they had the Mac OS X team build Remote Disc, which allows the MacBook Air to get its data from a networked Mac or PC. The latter is quite an achievement, because it means that the Air can coexist nicely in a mostly-Windows environment, which is a perfectly normal situation in the business world.

What about wired networking? Again, there was no room for the chips, and the word “Air” connotes a product that is largely untethered from wires. With 802.11n becoming more and more prevalent in Wi-Fi setups, Apple was still able to provide the means for adequate throughput, even when transferring normal-sized files. Yes, there’s a USB adapter to add 10/100 Ethernet, but that’s something that should seldom be needed, unless the Wi-Fi router is offline. Let’s call that an emergency solution.

The rest of the design considerations probably followed in a logical fashion. There are just three ports, for headphones, USB and external video. Even if you need more ports, another appendage, a USB hub, would do the trick.

Yes, there are some loud criticisms you can make about the tradeoffs. Take the lack of FireWire, for example, which is still required for linking to most camcorders. But as circuits get smaller and smaller, and hence lighter, perhaps Apple will be able to restore some of those missing features in a future version.

Indeed, the Air, like the iPhone, is basically a 1.0 product, with room for improvement. So if today’s model doesn’t suit — and it’s not on my shopping list either — perhaps its successor will be more in tune with your needs and desires.

On Monday, just days after returning that review iPhone to Apple, I got my own. On Tuesday, Apple upgrades the iPhone and iPod touch with a 16GB version of the former and a 32GB version of the latter. Prices for the expanded editions are $100 higher.

So should I feel disappointed that Apple caught me flatfooted? Well, I have to admit it was slightly disconcerting, especially since I spent Monday evening with my long-time friend Craig Crossman, on his Computer America radio show, discussing possible future iPhone updates. I suggested an update with expanded memory, but we didn’t expect the real upgrade, incorporating 3G network support, until June.

Indeed, the new products are the same as the old in every respect beyond storage capacity.

Well, perhaps I should have listened to myself a little more carefully; maybe, that is. You see, I could have waited a day, dug deeper into my wallet and come away with twice the capacity on my new iPhone. But I’ll get back to that shortly.

Now as a practical matter, the existing iPhone and iPod touch models didn’t become obsolete overnight. All Apple did was give you an extra choice, should you decide to accept it. To me, a 32GB iPod touch is the far more significant upgrade of the two, because it adds one more nail to the iPod classic’s coffin.

You see, I am willing to bet that a significant number of people who own the traditional iPod never approach its maximum storage allotment, not even close. My son, Grayson, for example, uses between 32GB and 40GB, although he has 160GB available, and he’s a musician and inveterate music lover.

Do you see what I’m getting at?

I fully suspect that you are going to see fewer and fewer sales for hard-drive based iPods now. Sure, the 32GB touch is a a lot more expensive, twice as much as the low end classic in fact. In other words, you can buy two of the latter for the price of the former, and that may present a dilemma right now, particularly in a shaky economic climate.

But Apple remains at odds with Wall Street in one key fashion. You see, they don’t just look at the next quarter or the one following, but at the long-term picture. When they talked of the Wi-Fi mobile platform during that call-in session with financial analysts last month, they were laying out their vision for the future of digital music players.

Was anyone listening?

While Microsoft is cutting the prices of the Zune, because it’s not selling very well, and hoping against hope to imitate Apple’s iPod circa 2005, they are just eating dust. The standalone digital music player is an endangered species. The ability to add email and Web surfing features is significant, and Apple’s touch screen platform is way ahead of the competition.

Now let’s return to my fateful purchase decision. First of all, it’s clear that Apple and AT&T have resolved some of the early activation glitches. In my case, since I already had an AT&T account, setup was primarily a matter of adding a data plan to my service, and transferring the phone number for a Motorola RAZR V3 to the iPhone.

The purchase was made at the nearest AT&T store, about a 10-minute drive from my office. The sales representative, John, was gracious enough to hold a unit for me when I called him about availability. The actual transaction took maybe two minutes, plus the time I spent talking with a customer who was returning his BlackBerry, and eying his own iPhone. During our chat, I played with the tiny keypad of his smartphone, and found that single fingers on the iPhone’s touch screen are far better than the all thumbs approach on that absurdly ugly BlackBerry, at least for me. There’s no comparison.

Anyway, John gave me a phone number for AT&T support, in case I ran into any activation difficulties with iTunes. But I didn’t. I plugged in the iPhone to my desktop Mac’s USB port, answered a few brief interactive questions about my service and the data plan I wanted. That was all it took. Two or three minutes later, the iPhone was fully activated, assuming the number formerly used by the retiring RAZR. No Sim swap necessary, although some have gone that route.

But the real question is whether I should take back my new 8GB iPhone and exchange it for the 16GB version. For me, the answer is no. I’m only using less than half the unit’s storage capacity, and I don’t see a need to squander an extra $100 for something I just don’t need.

My final decision was to spend $69 on Apple’s extended service plan, which expands the iPhone’s warranty for an extra year. I used the change to take my son out for lunch, and the happy smile on his face confirmed that I had made the correct decision.

All right, is the iPhone still extremely popular, or is demand declining? What about the iPod and the Mac, or even the Apple TV, which is due for a software revision shortly?

If you believe some of the stories you’ve read, Apple is cutting back on production of the first two, increasing production on the third, and the jury is still out on the forth. Is that why their stock price is, relatively speaking, depressed these days?

Or is Wall Street still looking for those missing iPhones, numbering over one million last I heard? Well, I suspect if they would just survey cities around the world where Apple isn’t doing business with a local carrier, they’ll find plenty. They could also examine the offerings at eBay and elsewhere to see how many people are selling unlocked iPhones. They might find some needed illumination. But that would require work, and it’s a lot easier just to repeat the same old nonsense.

When it comes to iPhone production, I’ve heard it both ways. First 50% less, than 50% more, but that’s something that’s going to vary over time, as Apple adjusts its inventory to meet the actual demand for the product, not what analysts think it might be. Sure, they can do surveys, but the largest dealer is Apple itself, and they won’t talk to these people beyond their quarterly financials. In other words, it’s a wasted effort, and just consulting AT&T would give them only a partial picture that is not apt to represent the complete trends in iPhone’s sales.

I suppose you could also add iPhone sales figures to the iPod line, since it’s basically an iPod touch with a built-in cell phone. Apple, of course, doesn’t do that. But if you leave the iPod separate, the next question is whether the last quarter’s sales, with only a small increase in the number of units sold, indicates a trend. Sure, a lot fewer iPods will be sold this quarter, since that’s a highly-seasonal product. But how will things fare compared to last year?

In other words, are standalone digital music players an endangered species? Perhaps. I gather that Microsoft has begun to shave the price off the Zune, which isn’t something they’d be apt to do if the thing were selling at decent levels. But don’t count something like an iPhone in that category, as it’s very common for mobile phones to get cheaper over time. Remember what the Motorola RAZR cost when it first came out, which put it in close range to the iPhone today? Now you can get a RAZR for next to nothing with the standard two-year service agreement from one of the major wireless carriers.

However, I do agree that the iPod cannot live long and prosper in its present form and, by talking of a new Wi-Fi mobile platform, Apple knows that too. The iPod touch is but the first of a new generation of gadgets that will, ultimately, supplant the original iPod except at the very low end of the line. It may not happen this year, or the next, but the handwriting is on the wall in big letters.

What is going to separate the winners from the losers is the ability to morph the product into an expanded portable device that doesn’t just play music, but lets you go online to check your email or browse your favorite sites. Here Apple’s wonderful touch screen technology handles the job extremely well. Yes, other companies have touch screens too, but how easy are they to use by regular people without following written directions?

Indeed, that’s a major advantage to the iPhone and iPod touch. When I first spent extended face time with the former, I didn’t bother to read the tiny pamphlet that came with the unit, nor the extended electronic manual Apple offers online. Yes, I had read a portion of the latter months ago, but didn’t think much about it as I just played with the iPhone. Within a short time, I mastered most of the basics of manipulating screens and typing text with a touch screen.

Of course, I suppose I had the advantage of never using a BlackBerry, and never wanting to use one, thank you.

As to Mac demand, unconfirmed reports say it’s way off the charts, and there are growing suggestions that sales may double by 2011. But consider how sales have expanded to the present 2.3 million level per quarter in the space of a couple of years from way less than a million for the same period?

Indeed, Mac sales have already more than doubled a whole lot quicker than those estimates demonstrate? Can Apple continue to grow their market share so fast over the next couple of years? What about reports that almost a third of the people planning to buy a new personal computer in the next few months — either desktop or note-book — have Macs at the top of their shopping lists? That has to count for something, if you can believe in surveys that is. After all, the surveyors didn’t do very well predicting the results in the New Hampshire Democratic primary, as you recall.

In any case, I’m inclined to take all these reports about demand and production with a grain of salt. Yes, such industry analysts as the NPD Group can keep tabs on retail sales up to a point, but beyond that, only Apple’s quarterly results will paint the whole picture.