The Mobile World Congress in Barcelona next week will be crucial for Microsoft, Steve Ballmer & Co., trying to show an industry increasingly skeptical that the company has what it takes to be a strong competitor in mobile phones. And it looks like Microsoft will be bringing the goods, unveiling the next version of its Windows Mobile operating system, according to a report by Nick Wingfield The Wall Street Journal.

The Wall Street Journal notes that Microsoft has become more involved in the design of hardware for Windows Mobile devices, and the paper cites anonymous sources saying that Windows Mobile 7 “sports a revamped user interface that resembles the look of Microsoft’s Zune HD music player.” Could that be the source of confusion that has led to all the “Zune phone” speculation over the past couple years?

Microsoft, which was early to market with its operating system Windows Mobile, has seen its market share decline to competition from rivals such as Apple’s iPhone and, more recently, Google Android devices.

Ballmer spoke at the Mobile World Congress early yesterday morning, Pacific Time. A webcast will be available via this Microsoft page, and we will have full coverage as events unfold.