There are already several mobile phone OSes on the market, with Microsoft's Windows Phone 7 joining the fray in the near future.  According to TechCrunch, WP7 isn't the only new OS on the block, although this other software is coming from an unexpected source: Facebook.  Feeling pressure from iOS and Android, Facebook is said to be secretly tasking Joe Hewitt and Matthew Papakipos to build the company's own OS that will integrate deeply into a user's Contacts and other portions of the phone.  Both Hewitt and Papakipos have experience with operating systems, as Hewitt helped create Firefox and used to develop the Facebook iPhone app and Papakipos worked on Google's Chrome OS until this past June.  There's no word on any sort of release info, but many expect the Facebook phone to be an affordable device, possibly with a price as low as $50.

While a $50 Facebook phone would be competing more with feature phones than most smartphones, but it would definitely be an interesting option.  At that price, though, the Facebook phone would be popular with the younger set and with their parents who don't feel like dropping $200 or more on a smartphone for their kids.  Still, the software is still very much in development, and it may never even see the light of day.  I'm sure we'll be hearing more in the future, so stay tuned.

UPDATE: That was fast.  Facebook has already responded to the rumor, denying any existence of a Facebook phone.  Spokesperson Jaime Schopflin told CNET that Facebook is always working to more deeply integrate its services into existing OSes and platforms, and that the people mentioned in TechCrunch's report are working on that deep integration, like an HTML5 version of the Facebook site.

UPDATE #2: It looks like we all spoke to soon, as now CNET has confirmed with their own source that Facebook has reached out to different hardware manufacturers and carriers about a potential Facebook-branded handset.  The idea would be that a hardware company like HTC would build a smartphone running Android and have Facebook services deeply integrated into the OS.  The project is still very early in development, says CNET, so it's still unclear if the Facebook phone will ever actually be released.

Via TechCrunch, CNET (1), (2)