CNET News.com has details on the proposed new format, Windows Media Photo (with the unfortunate acronym of WMP). From the story:

Steven Wells, a part-time professional photographer, said he sees promise in the new file format. "The JPEG artifacts make it almost unusable for professional photographers," he said. "Windows Media Photo is possibly the first viable compression format."

Yet, success will depend on adoption, Wells said. Microsoft will need to get players such as Adobe Systems and Apple Computer on board to win over the graphics professionals, he noted. A major unknown is licensing, which Microsoft has not yet addressed. "Licensing can kill this," Wells said.

As yet, no licensing details have been announced.