Is a computer with no disk drive and no applications software still a computer?

Litl LLC, a small Boston company, says its eponymous Litl device is the future of personal computing. Litl is a Web computer with a full keyboard and an operating system designed for people who use online software like Google Docs and store their photos on Flickr or Shutterfly.

On its screen, a viewer sees 12 business-card-sized Web pages. Clicking on the desired page expands it to full screen, and the user can read the page, buy shoes or build a spreadsheet. It doesn’t have icons, files or menus of its own.

The device can also be flipped up into an A-frame so the screen is visible to show photos, videos or text-news feeds that can be seen from across a room.

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There is absolutely nothing coincidental about Apple (APPL) launching new products today. The big product launch is Apple’s first preemptive marketing strike against Microsoft (MSFT), Windows 7 and the entire PC industry. It’s a bold move exploiting a position of strength against an industry weakened by low-margin, low-priced netbooks.

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Microsoft (MSFT) has revealed that, for a $1000 PC, it has always charged the OEM about $50, or five percent, for Windows.

At the Jefferies Annual Technology Conference, Charles Songhurst, general manager of Corporate Strategy at Microsoft, answered a rather long onslaught of questions about where Redmond is heading. At one point, Songhurst started talking about how investors were asking Microsoft what its standpoint was on the “skewing PC price point” (i.e. “the netbook effect”). Songhurst explained that it was more interesting to look at “the growth merchandise volume of all PCs sold” despite the “emergence of a lot more segmented SKUs.” In other words, he believes that although the price range for the PC is widening, the market is still growing, and that’s all that matters to Microsoft.

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Two years ago, Asustek wowed the world with the hottest selling computing product to arrive in recent memory: the Eee PC netbook. But even that blockbuster device has failed to do much to boost the company’s brand in the United States, a situation the Taiwanese computer maker intends to correct.

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New research by IDC points to falling sales of the chip that drives the majority of netbook PCs–Intel’s Atom CPU. One suggestion is that the first quarter 33% drop is a sign that the netbook’s rise to fame is on a down trend. In truth, that’s not quite right. But the situation is complex.

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You know that saying–if it walks like a duck and quacks like a duck, then it must be a duck. Same goes for portable personal computers–whether you call them netbooks or laptops. Jen-Hsun Huang, CEO of Nvidia (NVDA) agrees. “Netbooks are not a new category, instead they are just cheap PCs,” he said at a dinner last night with a handful of technology journalists. “It has [an] Intel (x86) processor and runs Windows XP, and to me that is a PC.”

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Now that Steve Jobs has bowed out of the annual (and possibly the last) Macworld Conference & Expo this week in San Francisco, there’s considerably less likelihood of any interesting, much less compelling, announcements from Apple at the event.

Too bad in a way, because lots of folks were hoping that Apple might announce its arrival, albeit late, to the netbook party.

“Late” in this case is no huge drawback. The market for netbooks, defined here as ultraportable but still full-functioning personal computers, has barely moved out of infancy. The early models from industry leaders like Asus have been solid demonstrations of what’s coming, and for some uses they are just fine.

Jobs has famously said Apple (AAPL) can’t make a netbook that isn’t crap, at least at the price point the market currently supports. But Apple doesn’t sell its other computers at the prices PC makers charge in most cases. Its excellent software and reasonably solid hardware have always earned a premium.

Apple could and should take the netbook genre forward in ways that will make these devices utterly compelling. To see where the company should go, we only need to look back a decade–to Apple’s Message Pad, a.k.a. the Newton–and then extrapolate forward in fairly obvious ways.

The Newton was far, far ahead of its time: essentially a large-screen PDA that came bundled with useful applications and boasted handwriting recognition. Unfortunately, the early versions of the handwriting feature were so clumsy, sparking ridicule that included a hilarious send-up in the Doonesbury comic strip, that the device’s reputation scarcely improved even though the software did.

For reasons that remain mysterious, Apple killed the project in 1998. I suspect (with absolutely no proof) that this may have had something to do with the company’s rapprochement with Microsoft the previous year, when Microsoft helped save Apple by agreeing to keep selling its Office software for the Mac.

The Newton technology and its progeny were absorbed into Apple, and pieces have emerged in various ways over the years. But the fundamental idea of the Newton was a smart one, and today’s processing power, storage, connectivity and software give it more value than ever.

The rumor mill has Apple offering up a larger-screen iPod Touch sometime this year. If that’s all it is, then Apple will have missed a big opportunity.

What might an Apple netbook–let’s call it the NewBook (not the NewtBook, which would make people think of Newt Gingrich)–look like? And what might we do with it? The possibilities dazzle.

First on the basic hardware front, the Apple NewBook would use Intel’s Atom processor or one of the emerging competitors from AMD and other chip companies. It would come with enough RAM and flash memory to be a reasonably serious computer, running OS X, and would boast a real keyboard plus a variety of standard ports. A built-in still and video camera, plus a microphone, would be highly useful as well.

Second, the larger screen would offer more than the touch screen in the iPhone and newer Mac laptops. Beyond using finger-driven gestures to navigate, it would have tablet features, including handwriting recognition, annotation and much more. (Several PC makers are expected to announce tablet-netbooks at this week’s Consumer Electronics Show in Las Vegas.)

Third, given that that our data increasingly live in the cloud and on home and office servers, the NewBook would contain several radios: fast Wi-Fi, of course, but also GPS and one or more connections to high-speed 3G mobile networks. (Apple being its typical control-freak self, unfortunately, the 3G would likely be limited to one carrier.)

What could we (and Apple) do with such a device? Lots.

Beyond standard personal computing, Apple’s netbook could be an excellent e-book. I have an Amazon Kindle, which I like a great deal (disclosure: I’m an Amazon shareholder), but Apple is in a perfect position to grab a major share of this quickly growing market. The company could even sell books through the iTunes Music Store, something it could do now given that the iPhone and iPod Touch can be used as adequate (though the screen’s too small) e-books today.

The Apple NewBook could also emerge as an ideal personal entertainment system and solid gaming device. The iPhone is fine for watching some kinds of video on airplanes, but I’d welcome a somewhat larger screen. For gamers, the iPhone is already becoming an intriguing platform, but the NewBook’s larger size and processing power would undoubtedly spark an aftermarket for hardware controllers and other input tools as well as great software.

I’m describing the kind of machine I’d gladly carry on short trips in lieu of my MacBook Pro, which I use at home and at the office. But before I adopted it for that kind of use, I’d need dead-easy, robust and absolutely reliable synchronization with the 15-inch laptop and whatever data I choose to keep in the cloud. Given the mess Apple has made of Mobile Me, my money would be on third-party developers.

There’s one thing I’d hope Apple would not do: lock down the netbook the way it’s locked down the iPhone and iPod Touch. By all means, Apple could and should use the iTunes store to sell third-party applications. But by no means should it force customers to jump through hoops to jailbreak the devices so they can use what they bought the way they want to use it.

Apple was late to the MP3 party, but it beat everyone else with a system that changed the game. Could we see a similar breakthrough with its netbook?