n4cer wrote:
The issue is likely licensing fees (as it was with MPEG-2). The Zune team recoups the cost of licensing from hardware sales. Including it in WMP would mean MS has to pay a fee for each copy of Windows in which the codecs ship. The price premium for Ultimate (and I believe Home Premium) includes licensing costs for codecs like MPEG-2 and Dolby Digital, which is why those are included in those SKUs. Maybe they will add H.264 at some point though (they do ship an MPEG4 codec currently, but I'm not sure what profiles are supported). The Zune (software at least -- not sure about hardware) just got H.264 support with the latest update.

Ahhh nice. Thanks for that n4cer. This is probably the case.