The cute little green alien-looking computer that is the XO PC (aka the “$100 computer” that costs $200) is now available with Windows XP. For anyone who’s had a chance to play with one of these machines, the Linux based operating system takes some getting used to for those of us used to the familiarity of Windows.

As it would turn out, education ministries in the developing world, the market the “one laptop per child” program targets for its cheap, durable PC, prefer machines with Windows on them over the unfamiliar Linux system as well:

…some countries, such as Egypt, want machines that run Windows, the most common personal computer operating system in the developed world.

“They said we would be in a much better position with a Windows-capable machine,” he said.

Meanwhile, Microsoft was working on a version of its Windows XP operating system that would work on the relatively low-powered XO computer.

“Lo and behold, they finalized [it] and have a very crisp-running machine with XP on it,” Kane said.

A statement from Microsoft said the Windows XP version of the XO will be capable of using hundreds of thousands of Windows-compatible programs and hardware accessories.

My first thought at this news was, “well, there goes any chance at achieving a $100 laptop for poor children in the developing world…” Windows XP, which retails for aroudn $250 in the rich world, would push the price of an XO from $200 to $450, if Microsoft were to charge the retail price for its operating system, that is.

In fact, Microsoft is making its popular operating system available for $3 per XO, which is probably close to the actual marginal cost to Microsoft of producing additional copies of XP. What’s the incentive for Microsoft to make this apparently charitable gesture to the OLPC program?

Mike Cherry, lead analyst for Windows at Directions on Microsoft, an independent software-research firm in Kirkland, Wash., said Microsoft doesn’t want cheap Linux-based computers to threaten the dominance of Windows.

“Let’s say they put Linux on there, and people say, ‘Hey this works pretty good,’ and they start looking at it for other applications as well,” he said. Getting Windows onto the XO laptop is one way to prevent this.

“I think it’s along the lines of not allowing anybody else to get a toehold,” Cherry said.

Sometimes when companies like Microsoft act in the pursuit of their own self-interest, society as a whole benefits. In economics we call this predatory pricing. Two firms, Microsoft and Linux, are competing for a larger foothold in developing countries where more new PC users are expected to emerge in the coming decades than anywhere else.

In the name of competition and its desire to maintain market share, Microsoft has taken a product that it usually charges the full monopolist price of $250 for and reduced its price to the marginal cost of $3. To prevent all PC users from taking advantage of this massive price reduction, however, the company will only make the $3 version of XP available on the XO, assuring that only the poorest, most technologically deprived consumers benefit from the company’s price discrimination.

While the price of the XP ready XOs will be about $10 higher, the ability to run thousands of Windows programs will surely give the OLPC program a greater appeal to education ministers and government officials in the developing world. Don’t be surprised if in the near future we begin to see more and more of the little green alien machines in the hands of the developing world’s school children.