The founder of the ambitious “$100 laptop” project, which plans to give inexpensive computers to schoolchildren in developing countries, revealed April 26 that the machine for now costs $175, and it will be able to run Windows in addition to its homegrown, open-source interface.

In addition, the devices could have a new market: U.S. schools.

Nicholas Negroponte, the former director of the Massachusetts Institute of Technology Media Lab who now heads the nonprofit One Laptop Per Child project, updated analysts and journalists on where the effort stands, saying: “We are perhaps at the most critical stage of OLPC’s life.”

That’s because at least seven nations have committed to being in the initial wave to buy the little green-and-white “XO” computers–Uruguay, Argentina, Brazil, Pakistan, Thailand, Nigeria, and Libya–but it remains unclear which will be first to pony up the cash. The project needs orders for 3 million machines so its manufacturing and distribution effort can get rolling.

The ever-optimistic Negroponte didn’t sound worried, however: He expects mass production to begin by October, and he said many other countries, including Peru and Russia, have been inquiring about taking part.

The XO machines will be made by Quanta Computer Inc., the world’s leading maker of portable computers. Quanta agreed to take a profit of about $3 per machine, less than what it gets from mainstream PC companies, Negroponte said.

Even so, the cost of the machine–which boasts extremely low electricity consumption, a pulley for hand-generated power, built-in wireless networking, and a screen with indoor and outdoor reading modes–is now $175. The OLPC project takes an additional $1 per machine to fund its distribution efforts.

Negroponte’s team has always stressed that $100 was a long-term target for the machines, but recently publicized figures had put it in the $150 range. Negroponte says the cost should drop about 25 percent per year as the project unfolds.

Even at $175, the computers upend the standard economics in the PC industry. A huge reason for the low cost has been XO’s use of the free, open-source Linux operating system, tweaked for this project with the help of one of its sponsors, Red Hat Inc.

The result is that XO’s software is highly original, in hopes of making the computer useful as a collaborative tool and intuitive for children who have never before encountered a computer. There are no windows or folders, but rather an interface heavily reliant on pictographic icons.

However, Negroponte disclosed that XO’s developers have been working with Microsoft Corp. to make sure a version of Windows can run on the machines as well. It could be the $3 software package that Microsoft announced April 19 for governments that subsidize student computers (see story, page 10).

Word of Microsoft’s involvement was somewhat striking, given that the software company and its closest corporate partner, Intel Corp., have questioned whether the computers will do much to stimulate educational gains.

Whether the machines might someday land in U.S. schools has been another question. OLPC had decided not to work with American schools, Negroponte said, because “we’ve designed something for a totally different situation”–meaning kids in poor countries. Now, he added, that might change, since 19 state governors have expressed interest.