The news is rolling in about a gigantic exchange of money from Microsoft to Nokia as part of the newly minted deal between the two corporations that would spread the Windows Phone 7 operating system far and wide. Two sources with knowledge of the terms approached Bloomberg and let them know that they $1 billion being offered by Microsoft is part of the deal to have Nokia develop and promote Windows-based phones.

The actual underlying deal is still the stuff of rumors, and it’s well known that the ink isn’t just not dry yet—it’s not even on paper—but the possibility of a billion dollars changing hands makes the activity extremely juicy.

Nokia will pay Microsoft a fee for each copy of Windows used in its phones, costs that will be offset as Nokia curtails its own budget for software research and development, said one of the people, who declined to be identified because the final contract hasn’t yet been signed. The agreement runs for more than five years, the people said.

A billion dollars is a lot of fees—er, I mean phones.

It looks like Micorsoft is essentially handing Nokia a blank check to run wild with the integration of Windows Phone 7 into their product line and a powerful reason to roll out with them as soon as possible. The one-billion-dollar incentive strikes me as an investment to be paid back over five years that’s entirely contingent upon the capability of Nokia to sell phones with Microsoft’s operating system running on them.

This sort of boost will do wonders for the sudden drop in Nokia’s stock prices after the announcement of the deal and will probably help reverse their slow decline over the past few years. Especially important is that Nokia and Microsoft will have to overcome the negative stigma in the market that caused an almost 26% drop in Nokia’s shares since the deal was revealed February 11th—and this after reporting market losses during Q4 of 2010.

While people love Nokia, they just don’t trust Microsoft in the mobile market.

Microsoft has been fighting a losing turf war against Apple and Google there for a while now, the corporation’s stock falling almost 7.8% so far this year. So they’re looking for anything that can boost their outlook. The possibility of Nokia going with Android probably gave them the incentive to make such a gigantic concession:

The agreement for the more than billion-dollar payment was part of a campaign by Microsoft to keep Nokia from choosing Google’s Android operating system, one of the people said. Nokia also opted for Microsoft because Windows Phone software, which is newer than Android and has a smaller number of handsets for sale, gives Nokia a better chance to stand out, one of the people said.

A billion dollars later and we’d better see some innovative handset concepts using Windows Phone 7 soon or I’ll be disappointed!

Even with this energizing wad of cash pumped directly into the beating heart of one of the most popular handset developers of the 20^th century—Nokia and Microsoft still have a long road ahead of them. Google and Apple have done extremely well cornering the smart phone market and RIM hasn’t been pulling any punches lately.