While Microsoft is busy trying to overcome consumer opinions of its current operating system, Windows Vista, the software giant is also undergoing an internal effort to beta test the next version, called Windows 7. Last week, the company began testing an internal version of the software that it hopes to ship to attendees of its Professional Developers Conference (PDC) in late October. This build has shipped to Microsoft employees and, reportedly, close partners of the company.

The build, which is referred to internally as M3 for "milestone 3," reveals a product that is very much like Windows Vista both visually and functionally. Microsoft has ported the "ribbon" user interface from Office 2007 to a number of bundled applications. As previously reported, Microsoft has tasked the team that created the ribbon UI with updating the Windows shell as well.

External reports have suggested that Microsoft will begin de-bundling certain applications--like Windows Mail and Windows Movie Maker--from Windows 7 and will instead make them available as separate downloads from Windows Live. Also, some have suggested that Microsoft will ship a Beta 1 version of Windows 7 by the end of the year.

I can't confirm those rumors. But I have talked to people with access to the M3 build, or build 6780, and they've reported that this version of Windows 7 is surprisingly stable and usable, and well ahead of where Windows Vista was at this point in its development cycle.

More information as it comes in.