The VAR Guy and other journalists continue to hype the showdown between Cisco and Microsoft, particularly in the small business sector. But is a showdown really coming? And what are the potential outcomes?

The VAR Guy raised those questions today during meetings with Cisco executives and solutions providers. Of course, the responses are a bit biased, since all of the sources are attending the Cisco Partner Summit here in Las Vegas. Nevertheless, it’s clear that competition between Cisco and Microsoft is on the rise.

Wray Smith, a partner at 3t Systems in Denver, is a Cisco and Microsoft partner. And yes, he expects Microsoft and Cisco to compete head-on in unified communications. Although Smith’s team is intensely loyal to Cisco, 3t Systems doesn’t hesitate to recommend Microsoft solutions whenever appropriate.

The big challenge for Microsoft partners, he notes, is whether they are willing to recommend a combination of Microsoft-Nortel solutions. As you’ll recall, Microsoft is closely aligned with Nortel in the unified communications sector. And Nortel isn’t exactly a channel powerhouse right now. “The Nortel channel has been decimated,” adds another Cisco partner. “Is Microsoft really expecting its partners to recommend Nortel rather than Cisco hardware? If so, that’s a leap of faith.”

Wendy Bahr, VP of US Commercial Channels at Cisco, speaks a bit more diplomatically about the current market dynamics. On the one hand, she concedes that Microsoft and Cisco will compete more aggressively against each other. But on the other, she evokes the memory of former Novell CEO Ray Noorda, stating that Cisco will need to embrace “coopetition” — a strategy that includes competing while cooperating. “Both companies are developing products to fit the need for unified communications,” says Bahr. “We’re a hard-charging organization, but we can’t demand that our partners don’t sell Microsoft solutions.”

Instead, Cisco will be “mature in its approach,” stressing that the networking company has always supported open platforms that interoperate.