The prototype is made by Casio Computer and Siemens, in preparation for Microsoft's handheld battle with Palm Computing.
"It's a little bulky at the moment, but the final version will be as thin as the Cassiopeia," says Georg Wolf, director of marketing with Siemens' Communication Services division.
The Casio PC will support e-mail, mobile Internet access, and Global System for Mobile communication telephone capabilities through a standard headset, says Greg Levin, director of marketing for Microsoft Europe.
Microsoft did not offer any details about product release or pricing, saying only the first Pocket PC products will ship during the first half of this year.
As well as being able to connect to the Internet over a conventional or wireless modem, the company also says the Pocket PC will be able to connect over local area networks, personal area networks, and wide area networks.
Pocket PCs were announced by Microsoft Chair Bill Gates at the Consumer Electronics Show in January.
Hardware manufacturers involved in the project include Casio Computer, Compaq Computer, Hewlett-Packard, Siemens, and Symbol Technologies.
"It will be interesting to see how the new Pocket PC interface design and applications stack up to the Palm," says Diana Hwang, program manager for mobile research at International Data Corporation, in a presentation here.
Although industry feedback so far suggests the Pocket PC improves on the current Palm-size PC platform, it still remains to be seen if Microsoft can gain market share from the market-leading Palm OS, Hwang adds. She notes that this may well be the company's last stand in the palm-size device segment.
"If this doesn't work for Microsoft this time, then I think that's it for Microsoft," she says.
Terho Uimonen contributed to this story.