Palo Alto, California-based Xen Source is setting up a new office in Microsoft hometown of Redmond, Washington to help design and develop the products that will fulfill the recent co-development agreement between the two companies.

Xen said the new office will focus on joint development of technology to enable Longhorn server to run Linux on XenEnterprise as well as interoperability between Xen and Microsoft’s own forthcoming virtualization hypervisor.

The new office will also focus on the development of new proprietary products to extend Xen Enterprise, as well as the performance and manageability of Windows running on Xen.

The opening of the new office follows the announcement of a deal between Microsoft and Xen in July that will see eventually see Windows supporting Linux running on XenEnterprise.

Microsoft said it plans to release a beta of Windows Server virtualization by the end of this year, with a release to manufacturing due six months after the release to manufacturing of Windows Server Longhorn. That is currently scheduled for the end of 2007.