This doesn’t necessarily mean you’ll be able to pick up a $200 laptop running Windows XP at your local Best Buy anytime soon. The primary markets for the XO laptop are developing nations where computers are expensive and hard to come by.

The OLPC team doesn’t plan to stop offering Linux based computers. But the deal with Microsoft might make the XO more attractive to some nations and educational purchasers who had balked at the idea of paying for computers that didn’t run Windows, still the dominant desktop operating system in most of the world.

The Windows license will add $3 to the price of the machines, and the extra hardware required to dual boot both Windows and Linux will add another $7.

Update: CNET reports that the Sugar team hopes to port the software to run on different computers. One of the first targets: The Asus Eee PC.