Microsoft posed with its technology partners in the market for online digital photo processing Tuesday as it prepares to launch its Windows XP operating system. Only, one of its foremost partners wasn't smiling. Kodak, the £10 billion film and camera company, issued a statement ahead of a Microsoft-sponsored digital photography event in New York City Tuesday condemning the software maker's tactics for creating an operating system that Kodak argues limits choice and competition. When the new operating system is released on October 25, it will include a bundled digital photo application that guides consumers conveniently through the steps for downloading a digital picture file from a camera to the PC, modifying it with software, and printing it through an online photo finishing service. Pulling itself from the pack of more than 20 partner hardware and software companies supporting digital photography on Windows XP-- from Compaq to Sony - Kodak contends that Microsoft's operating system unfairly promotes its own digital photo software and photo finishing Web site over competing applications and services from Kodak. A spokesman for Kodak said Tuesday that Microsoft is "positing itself as the gatekeeper" of the online photo industry. Microsoft sets its digital photo software as the default application on Windows XP, according to Kodak's statement. Kodak also argues that it also steers consumers to Web sites that print digital photos, such as the MSN Photos Web site or Web sites from vendors that agree to pay Microsoft a fee for every picture printed by way of the Windows XP operating system, Kodak wrote in its statement. "The Microsoft choice is visible, Kodak's is hidden," said Anthony Sanzio, a Kodak spokesman, in an interview. "They're doing this in an attempt to take customers away from Kodak and other software vendors." Pulling from its arsenal of defense remarks, a Microsoft spokesman said the company has made the necessary concessions to give competitors equal footing with software and services on Windows XP, and is still debating the technology that will be included in the commercial release of the operating system. "Windows makes it really easy to pick whatever software you want to use and whatever service you want to use," said Greg Sullivan, lead product manager for Windows XP. "We're really focused on addressing the needs of our customers and developing a platform that all of our partners can build on, and add value to, to provide the greatest customer choice." The latest industry criticism over the applications and services bundled with Windows XP adds to a laundry list of other complaints. AOL Time Warner continues to battle Microsoft over the placement of icons that lead to Internet services on the startup screen users first see when they turn on a Windows PC. A digital rights management technology firm, called InterTrust Technologies, filed a patent infringement lawsuit against Microsoft alleging that the company is illegally using its technology for products and services included in Windows XP. Privacy groups also filed a complaint with the US Federal Trade Commission against Microsoft's Passport authentication service loaded into Windows XP, and Congress is investigating Microsoft's plans to bundle its media player and instant messaging applications into the operating system. New York Senator Charles Schumer, whose state is home to AOL Time Warner and Kodak, first rallied Congress to take action against Microsoft's Windows XP tactics. Meanwhile, Kodak - a strong partner in AOL's online photo finishing services - has been embroiled in ongoing discussions with Microsoft over its treatment of digital photo applications and services on the new operating system for more than a year, Sanzio said. Originally, Windows XP forced consumers to go through what he called "the gauntlet of nine mouse clicks" to be able to use Kodak digital camera software over Microsoft's. With some negotiating, Microsoft has reduced the number of mouse clicks to reach Kodak's software to two. "We're happy that Microsoft has made some changes to Windows XP, but we still believe Microsoft is giving its own applications preferential treatment," Sanzio said. Tools built into Windows XP allow users to download pictures from digital cameras, scan images into their computers, view and organize their pictures, and share those files via email or the Web. But in the process Microsoft has said it plans to charge an up-front fee and a transaction fee to third-party companies that are given preferential treatment as application and service providers. What Kodak called "taxing the Internet," Microsoft said was in the best interest of consumers. "When you get a new PC you'll be able to have a great end-to-end digital photo experience," Sullivan said. "There will be offers from some service providers. We're working with a set of partners to make sure that right out of the box there is a service offering." The company hasn't finalized exactly how the services will be presented to consumers, or how Microsoft will charge partners, Sullivan said. Kodak also argues that Microsoft has "co-opted" an open standard called PTP (Picture Transfer Protocol) in Windows XP and is using it in a way contrary to its original design. PTP is an industry standard jointly developed by Kodak, Microsoft, Intel and other technology companies that enables digital cameras to talk to computers, printers and other devices using a common language. After taking the lead on developing PTP, Kodak now says the technology that was intended to allow companies to build compatible digital cameras and services based on the open standard is now being used to hinder competition in Windows XP. "One of the things that Microsoft plays on is that consumers will benefit from this," said Dana Gardner, an analyst with Aberdeen Group. He said that in Microsoft's case, it goes contrary to promoting competition because Microsoft's monopoly in the operating system market enables it to make its own software and services most beneficial to consumers. "If you're the only player in town then how good is that for the consumers?" Most of Microsoft's hardware and software partners are standing behind the technology bundled with Windows XP. Representatives from Fuji Photo Film. and Epson, for instance, praised the new operating system in a statement Tuesday for simplifying the process for consumer digital photo services. However, while these companies have built their software and services around Windows XP, they will still be forced to compete for users; and Kodak argues they don't stand a chance "Consumers should be able to freely choose the digital photo application of their choice," Kodak wrote in a statement Tuesday. "Microsoft should not steer consumers to 'approved vendors' where Microsoft will tax the transaction."