Add a TV tuner, and Freestyle also lets you use a PC as a PVR, recording live TV on a hard drive for later replay. Mira - based like PocketPC handhelds on Windows CE - provides the companion software for handheld controllers or "smart displays" (remote monitors).

Microsoft's Steve Guggenheimer says: "With Mira, users will be able to undock their monitors and carry them anywhere around the house, accessing their content anywhere they go, or access the same content from new flat screen TVs."

Freestyle and Mira have an obvious appeal to people who use their PC to play DVDs or watch TV - American college students, for example, and home users with a PC in a study or den. But this doesn't mean a PC has to replace the family TV set. As Doherty points out, "the fact that Microsoft's e-home strategy includes the PC doesn't mean the PC has to be in the living room."

With wireless networking, it could be anywhere. So, should the home gateway be based on the PC or the TV? There has evidently been a battle about this issue between Microsoft's PC-centric eHome division in Seattle and its UltimateTV division - formerly WebTV - in Silicon Valley. It seems it was finally resolved this week with plans to close the UltimateTV operation, according to the Seattle bureau of the San Jose Mercury News.

The service, with about a million subscribers, will continue, but will come under the control of MSN TV. The hardware group will become part of the Xbox team. Moxi should be pleased, since it implies that if there is a HomeStation, it will be based on the Xbox rather than Ultimate TV. Despite Microsoft's denials, the move makes it even harder to believe there aren't at least prototype Xbox-style HomeStations like the one featured last year by PC Format magazine.

The Xbox uses PC technologies - the kernel from the Windows NT/2000/ XP operating system, an Intel processor, nVidia graphics chips, memory, hard drive and (to be announced) a broadband internet connection - but is not a PC. It plays games and DVDs, and could easily be fitted with a TV tuner and PVR software. But it won't be. Unlike Sony, Microsoft does not have a Trojan horse strategy. As the Xbox's general manager J Allard told me when unveiling the machine:

"We are not confused: this is a single-function device entirely focused on the games market. We have to focus on creating great games."

Doherty says that if you compared a HomeStation with an Xbox, "97% of the DNA would be the same", but you would still need both products.

"Ideally, in a Microsoft e-home, they'd like you to have five or six!"

That is one reason why the idea is so seductive to manufacturers. Computers have multiple functions - playing games, writing email, doing accounts and so on - and this makes them more complicated than single-function devices such as PVRs, dedicated word processors and games consoles. It may be more profitable to sell people several dedicated devices, especially if you can piggyback on the PC industry by using the same high volume/ low-cost components.

Of course, the idea of re-using computer technology is much older than the Xbox, even in the home entertainment market. One of the first home gateways was an experimental Warner Brothers cable system in Columbus, Ohio, which used Atari 800 home computers as terminals.

The late Commodore Business machines tried re-using Amiga technology in its CDTV player, Apple tried a Macintosh-based system called Pippin, and at the height of the network computer (NC) hype, NChannel launched a set-top box based on Acorn technology. However, all of them flopped.

None the less, Bernoff reckons home entertainment gateways will be successful in the US, reaching 14.7m homes by 2006. "Incumbent set-top box makers will suffer as the market shifts from basic digital boxes to entertainment gate ways," he says. First, he thinks users will get to like the idea that they can have their entertainment anywhere in the house.

Second, the Moxi system works out cheaper in homes with several TVs, PCs and other devices. If you want TiVo functionality on a second TV, you have to buy another TiVo. With Moxi, you just add a cheap expander to link it to your home network. These could cost from about $40 to $100, depending on whether they are wired or wireless. As an incumbent set-top box supplier, Pace Micro Technology is after the same market as Moxi, but approaching it in an incremental fashion. Rather than promising a new blockbuster product, it is adding functions to an already successful line.

"We are coming from devices that [cable and satellite TV] operators will buy in their millions, and the Moxi is a bit more complicated than the ones we see operators being ready to buy in millions," says marketing director Andrew Wallace.

"The most gateway-ish product we do at the moment is the Di4000, the standard UK set-top box, which is installed by both Telewest and NTL," adds Wallace.

"It doesn't have PVR, but our Sky+ box does, and we are developing a Di4500 that does have PVR. In fact, we'll be launching a PVR that isn't linked to an operator - a retail device - later this year."

Pace is also working on wireless connections for its home gateway. "Once you have a wireless data connection, there are stacks of things you can do," says Wallace, "such as deliver streaming media to a [Compaq] iPaq."

The company plans to offer a "gateway expander" that will plug into the back of a cable box. It will offer digital enhanced cordless telecommunications (DECT) networking to cater for the millions of wireless handsets used in Europe, as well as the Wi-Fi (802.11) wireless networking used by Moxi and home PC networks. Operators can use either: "To be honest, we don't mind."

By the end of the year, when Moxi's Linux-based MC is expected to ship, Pace should have comparable technology. The question is, who is going to pay for it? This is where Pace may have the edge. Moxi is not planning to manufacture systems or sell MCs to consumers. It has signed a deal with EchoStar in the US, which will deliver the boxes to its subscribers. Pace can do both. The US market is mainly operator driven, which means users will get the gateway at a low price while paying a monthly subscription to use it. But "Europe is more of a retail market", says Wallace, which means consumers can buy boxes outright and use them with whichever free-to-air TV channels and ISP (internet service provider) they like. Microsoft could go either way, or both.

Its preferred strategy is to create a software package for a wide range of hardware manufacturers and let them fight it out in the marketplace. This drives down hardware prices, benefiting consumers, without driving down software prices, benefiting Microsoft. It has used this approach with DOS, MSX (a 1980s home computer system), Windows, Windows CE, Pocket PC, WBTs (Windows-based terminals) and PC Companions; it is doing the same thing now with Ultimate TV (developed from WebTV) and Tablet PC software.

If it doesn't get any takers it may go it alone using a contract manufacturer - as it did with the Xbox - but this is a last ditch option. Whether or not there is a HomeStation, the Xbox makes one thing clear: Microsoft is serious about the home entertainment interface, and is not going to leave it to Sony, Nokia, AOL and other pretenders. The people who criticised Microsoft for only supporting PCs are seeing their dreams coming true: Microsoft now wants to support PCs, handhelds, mobile phones, games consoles, TVs and other consumer gadgets as part of its next-generation .Net strategy. The irony is that, having got their wish, they are more likely to see it as a nightmare.