Updated 10:20 a.m., with pricing details.
On the hardware side, Microsoft will beef up Zune's capacity, expanding the hard drive-based model to 120GB and the flash-based player to 16GB.
More significant are the software and service improvements. Most notably, as is the case with the iPod Touch, Zune owners will now be able to use the device's built-in Wi-Fi to download songs.
Also new, the updated Zune will make recommendations based on the songs someone is listening to and there will also be new Zune "channels" programmed by experts and along themes like "work-out" music.
Zune will also come with two games--Hexic and Texas Hold 'em--and adds support for audio books in the Audible format.
In any case, I'm going to get a firsthand look at the Zune line later Monday and talk strategy with some Microsoft executives. So I should have more to say on the Zune front in short order.
Update: As for pricing, Microsoft plans to charge $249 for the 120GB model, $199 for the 16GB model and $149 for the 8GB flash model. It also plans to chop prices on some of the remaining older devices in the channel.