I don't think I really believe in the “can't be more than 10-inches” restriction to begin with tho. I mean at my local Wal-Mart they sell the new Acer Aspire One with a 11.6-inch screen that has XP on it – I've seen it myself (it does however also come in Vista home basic as well, so maybe they reached a deal? I dunno).

You shouldn't say they won't be allowed to run XP. The PC Vendor can ALWAYS install XP if they want. They just have to PAY FOR a full license to Vista. They don't get off with the $15 price they pay for XP on qualifying machines. The XP Downgrade is a standard feature of Vista, so you can always get XP if you want, AND your PC vendor wants to offer you XP. Its just that it won't save you money.

So there will be a price bump between the XP machines at 10″ with no hybrid drives, and the 11″ or hybrid drive machines. Ditto those with Windows 7. In the latter case though, presumably those machines will actually come with Windows 7 Home Premium rather than Starter, since hey, you've paid for it, and you probably want the extra features (wallpaper anyone?).

You are correct, howerver, these machines largely sell on price, which is what makes them netbooks instead of ultraportables of course. If you add $85 – $100 in greater costs, you have a hard time selling them. So basically it makes them unviable. So whether it's technically allowed or not, the higher price of using XP will cause it not to be used.