According to Engadget,
According to reports from a “source” inside Microsoft, a new batch of Zunes (AKA Zune 2, Draco, Scorpio, etc.) are due out on October 16th (just in time for the holidays), in both flash memory- and hard drive-based forms. The new, smaller, flash Zune (the Draco) will be hitting shelves in pink, red, black, or army green colors, will have a 4GB or 8GB capacity, and will feature a “squircle” (the source’s term, not ours) for navigation, which won’t have a center button but can be pushed, “From any side.” The hard drive-based player (the Scorpio) will be available in 80GB, sports the soon-to-be infamous “squircle,” and touts a screen which the source claims is “awesome” for video.
This sounds like progress, but at this speed they will never catch th e iPod/iPhone. MS needs to pick up the pace if they want this device to really compete.