Microsoft founder and chairman Bill Gates has finally taken the wraps off Windows Vista - the software giant's next-generation operating system - displaying features aimed at positioning it as the entertainment hub for a future of digitally connected homes.

Among the features is one that will allow users to plug their digital cable directly into their PC to watch and record high-definition cable content.

Mr Gates delivered his keynote speech at the Consumer Electronics Show in Las Vegas in front of a packed audience eager to sneak a first look at Vista.

A s broadband and high-definition content becomes ever more ubiquitous, Mr Gates said the unifying factor will be software.

"The software is where the magic is. If you're going to have all this power be simple enough, appealing enough and cool enough, it's going to be because the software is right," Mr Gates said.

Vista will include the next version of Windows Media Centre which is fully compatible with high definition programming, and Internet Explorer that promises improved security protection.

The five-year gap between the expected launch of Vista and Microsoft's current operating system, Windows XP, is the longest-ever gap between major launches of its core Windows product, the company's cash cow that accounts for more than a quarter of its $40 billion in annual revenue.

New features of Vista highlighted by Mr Gates included Windows Media Centre's plug-and-play technology, which can accept digital cable cards that allow high-definition programming without a set-top box.

Mr Gates touted this as one of the features that will create a true multimedia experience.

"Getting the video sources into the PC has been a limiting factor," he said. "We're making progress making the video content easily accessible on the PC."

Microsoft said it will also work together with DIRECTV to enable the transfer of digital content among Windows PCs, DIRECTV devices and the Xbox 360 to allow customers to watch movies and programs they get on their TV and play them on a number of different devices.

Better graphics for video games, a new user interface, easier search across the PC's hard drive and improved parental controls are among the other key features of Vista highlighted by Mr Gates.

Washington-based Microsoft also unveiled MTV Network's Urge Music Service, which will be built into Windows Media Center 11 and offers users instant access to two million songs and videos in MTV's library.

Meanwhile, Mr Gates sees IBM - not Google - as its biggest challenger.

Microsoft faces a host of competitors, ranging from Sony to Apple Computer to Nokia, in its quest to control the next generation of software, Mr Gates said.

"People tend to get over focused on one of our competitors. We've always seen that," he added, comparing the potential threat of Google's search capabilities to past competitors such as internet browser Netscape and Sun Microsystems's Java programming language.

Google, extending beyond its dominant position in inter-net searches, offers a variety of web software that ranges from communications to ecommerce, all of which poses a potential threat to Microsoft.

While investing heavily in search technology to challenge Google on the Web and the desktop, Microsoft has seen some of its senior executives defect to Google.

But asked if Google represents the most formidable threat of the company's 30-year history, Mr Gates replied with a curt "No."

"The biggest company in the computer industry by far is IBM. They have four times the employees that I have, way more revenues than I have. IBM has always been our biggest competitor," he said.

IBM, which offers computer services, software and hardware, poses a challenge to Microsoft in defining how Web services will work together in the future.

Also, IBM - along with Toshiba and Sony - has developed the Cell microprocessor that will power Sony's PlayStation 3 video game console, a competitor to the Xbox 360, Microsoft's next-generation gaming unit.

While Microsoft faces competition across its software offerings, Mr Gates said it is still mostly unchallenged in new applications such as internet protocol television.

"With speech recognition, visual recognition, ink recognition, reading everything online and new devices that enable that - in five years, that will just be common sense," he added.

"We're pretty simple, because 30 years ago we said we were a software company and five years, ten years from now we will say we're a software company."