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Yes it's true, the Zune is getting games! Microsoft GDC report that there will be games on the Zune by the end of the year! Chris Satchell of Microsoft just showed a preview of the new concept that Microsoft will be doing, "Community Games". They are community developed games that use the XNA studio tools. Details are still foggy right now but we'll keep you updated. Some points known - Wireless Mobile Games
- Integrated soundtrack to your collection
- Touchpad based games
Read more for pictures and details.
Zune Game Development FAQ
Developers will now have the capability to develop once for all three platforms: the Xbox 360, Windows, and Zune. While developers can write one game and target any platform, cross-platform networking between all three platforms is not supported.
Keeping with Zune media experience, XNA Game Studio 3.0 integration includes discoverability and access to user’s music allowing the user to customize background soundtracks or create real-time visualizations. In addition, the XNA Community Games Platform team has announced the ability to have multiple Zunes wirelessly engage in an ad-hoc gaming experience.
A preview release of XNA Game Studio 3.0 will be available in the Spring 2008 timeframe, with a final release scheduled for the holiday 2008 season.
Q: Will this feature only work on newer Zune devices?
A: XNA Game Studio 3.0 currently will support Zune 4/8, Zune 30, and Zune 80 devices.
Q: Can I build ccgame files to share my Zune game with my friends?
A: The XNA Game Studio 3.0 preview will not support sharing CCGame files with other users. This is a planned feature for the release.
Q: Can I transmit the game to another Zune device wirelessly?
A: No, you must deploy the game to your Zune through your device connection on your PC, using XNA Game Studio 3.0 to deploy.
Q: Do I need an XNA Creators Club subscription to deploy the game?
A: No subscription is required to deploy the Zune game from your PC.
Q: How does the wireless support work?
A: The Zune device can support multiple Zunes that have wireless turned on. If all the Zunes have the game deployed, and the game is written to work in a multiplayer mode, you can join in and play games with other Zunes.
Q: Are there any limitations on how I can use the music that’s stored on the Zune
A: Any DRM licensed music cannot be played; otherwise you have full access to the music and pictures stored on the Zune.
Q: You mention the Zune will be supported in XNA Game Studio 3.0, what else is supported in XNA Game Studio 3.0?
A: We have not announced any other features for XNA Game Studio 3.0 at this time.
Q: Will XNA Game Studio 3.0 work with Visual Studio 2008?
A: Yes, XNA Game Studio 3.0 will only work with Visual Studio 2008 and Express 2008 SKUs.
Q: When will we be able to try this feature out?
A: We expect to have a preivew of XNA Game Studio 3.0 available in the spring.
Q: What kind of gameplay limitations do I have?
A: With a 240x320 display and a design for one-handed usage, building games on the Zune requires some creative thinking that aligns better with mobile games. The XNA Community Game Platform team has worked hard to give you the broadest access to the XNA Framework API.
Q: Is the full XNA Framework Graphics API available on Zune?
A: No, The Zune supports 2D graphics through the XNA Framework SpriteBatch API’s. Rendertargets and the ability to directly set pixel data to textures enables developers to be creative with their Zune games.
Q: How much memory is available for Zune games?
A: Games on Zune are limited to 16Mb for code and content.
Q: Does the Zune support Xbox LIVE?
A: No, the Zune doesn’t connectto Xbox LIVE. All networking takes place over a local ad-hoc wi-fi network. However, the networking APIs are similar to what is available in XNA Game Studio 2.0.
Joystiq's Live Coverage on Microsoft GDC Keynote
Some key pictures from Engadget:
 Yep that's the games tab on the main menu! 
Zauri?? Anyway it looks like you can't send games via Zune Wireless. Looks like Space Invaders?
The Zune 80 Touchpad in motion!  You can also listen to your music while you play! Engadget EDIT BY MITCH
Here are some more hands on pictures taken from Engadget. I'm just posting 3, there are about 8 or 9 if you go to the Engadget link. 
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