LucidTouch as a GPS-based navigational device. Source: Microsoft

Microsoft isn't officially saying what the gadget -- called LucidTouch -- is for, but its form factor suggests it could be used as an ultra-mobile PC or PDA. Photos of a prototype appearing on a Microsoft researcher's Web site show the device being used as a GPS unit and a gaming platform, among other things.

Users can interact with LucidTouch by touching the front or the back of the device. A feature called pseudo-transparency creates an on-screen silhouette of fingers wrapped around the back to ease navigation. The feature "allows users to accurately acquire targets while not occluding the screen with their fingers and hand," says Microsoft researcher Patrick Baudisch, in an undated blog entry describing the device.

Baudisch says early tests on the prototype revealed that "many users found touching on the back to be preferable to touching on the front, due to reduced occlusion, higher precision, and the ability to make multi-finger input."

Microsoft has not provided a release date for the device. The photos suggest that some prototypes are being co-developed by Hewlett-Packard's Compaq division, which has worked with Microsoft in the past on Tablet PCs.

LucidTouch displays a virtual image of the user's hand. Source: Microsoft

Microsoft in the past has struggled to introduce computers with unconventional form factors. Its operating system and software support of Tablet PC, which allows users to input commands using a stylus, has developed only a niche following. Early versions of Tablet PC suffered from hand writing recognition glitches.

Later this year, Microsoft is expected to introduce a system, known as Milan, which features a touch screen about the size of a small coffee table.