During last week's deafening gossip that Bungie and Microsoft were breaking up, we asked a high-ranking official at another company, "What do you make of all of the Bungie-Microsoft rumors? Seems as though there's enough smoke here to indicate the presence of fire." To which the person replied, "Flames! And sparks!" Last Friday, the speculation that had been burning up the Internet turned out to be four-alarm blaze of truth. Bungie, which Microsoft purchased in 2000, announced that it had regained its independence, but would continue to work closely with Microsoft and remain exclusive to Xbox 360, at least in the immediate future. Despite what our sources were telling us, it all seemed amicable-except for this explanatory note on Bungie.net, in which the use of words like "stifle" and "unleash" seemed to hint that all had not gone well during the finishing of the fight. Here's an excerpt of what the note, written by Bungie's Frank O'Connor, stated:

Bungie has long been built on creativity, originality and the freedom to pursue ideas. Microsoft agreed, and rather than stifle our imagination, they decided it was in both our best interests to unleash it. We'll continue to make Xbox 360 games, and we'll continue to make amazing games for MGS. In that regard, nothing has changed. All that has changed is that now Bungie Studios is once again, the property of the folks of Bungie Studios. Microsoft is and will continue to be, a brilliant, inventive and creatively collaborative publishing partner. Practically speaking, nothing has changed and you guys won't see much, if any difference, for a  while unless you come to work for us, that is--we're hiring at http://www.bungie.net/inside/jobs.aspx

Rather than stifle our curiosity, we decide that it was in both yours and our best interests to unleash it. We sent several questions to Microsoft and Bungie, separately, via email. Here's what an unnamed Microsoft spokesperson wrote back:

Discussions began about a year ago. This change is a natural evolution of our partnership, and we both believe this will result in a stronger and more powerful partnership.

What prompted these discussions in the first place? What wasn't working about the then-current relationship between the two companies?

Microsoft and Bungie had and still have a great working relationship. The developers at Bungie wanted to return to their roots as independent developers and both groups agreed early on that this was a mutually beneficial evolution of the relationship. Now that the Halo trilogy is complete, this is a natural time for our two companies to evolve our relationship in order to tackle our next projects together.

How did Microsoft "stifle" Bungie's creativity and originality?

The Halo series' success is a testament to the positive, close working relationship between Microsoft Game Studios and Bungie. Our goal at MGS is to work with the world's best developers to create the world's best games, and this new relationship aligns perfectly with that vision.

Why did Bungie need to leave Microsoft in order to "unleash" its freedom to pursue ideas?

Bungie and Microsoft have been in talks for about a year for Bungie to return to its roots. This evolution is a strong long-term relationship and Bungie is committed to developing the best content for Microsoft platforms.

Is Microsoft's equity in Bungie from a cash or stock investment in the new company, or did Microsoft receive that equity in exchange for giving Bungie the rights to its name and technology?

The terms of the agreement are not being disclosed.

With FASA being shut down, Bizarre being acquired by Activision and Bungie going independent, what does this turmoil say about the current state of Microsoft Game Studios?

MGS is in a great position. At MGS, our charter is to cultivate the best individual development relationships and to nurture creative freedom for each of our developers. In terms of Bizarre Creations, they have been a great partner for MGS.  They've built an amazing franchise in PGR for Xbox and they continue to work on downloadable content for PGR 4.

We are committed to the games business, one of the core pillars in Microsoft's Connected Entertainment strategy, and look forward to one of our best holidays ever.