European Commissioner for competition Mario Monti may demand that Microsoft sell two versions of its Windows operating system in Europe: one with Media Player inside as it does at present, and another with the music and video playing software stripped out and sold separately.
Monti may also demand that Microsoft itself should propose "within a few months of a ruling" what Windows computer code it should reveal to make the operating system fully interoperable with rival software makers' programs for servers, which drive networks of PCs, a source said.
These likely remedies will come attached to a negative ruling against Microsoft, unless a settlement is reached during the next month to six weeks. A negative ruling is expected to carry with it a fine of at least $100m.
A Microsoft spokesman said the company is still pursuing "an amicable settlement".
An internal consultation within the commission has finished, and the proposed negative ruling drafted by the competition department in January has emerged "almost untouched".
Erkki Liikanen, the commissioner for the information society, urged Monti to be tougher on Microsoft over the Media Player issue, while Frits Bolkestein, the commissioner for the internal market, warned Monti not to infringe Microsoft's intellectual property in the part of the ruling that concerns interoperability.
Last August the commission told Microsoft that its practice of bundling Media Player into Windows amounted to an abuse of the operating system's dominant position because it placed rival music and video players at a disadvantage.
The commission agreed with Microsoft's rivals, which argue that firms offering content such as record companies and Hollywood studios, which can be played on media players will, increasingly, tailor their products exclusively for Microsoft's Media Player, because it will be the only player they are sure that people will have on their PCs.
Microsoft argued that unbundling Media Player from Windows would prevent the operating system from working properly. It also fears the precedent that would be set if it did agree to separate Media Player from Windows.
Future software products, such as an internet search engine which Microsoft plans to launch to compete with the Google search engine, count on the bundling business model Microsoft has employed with all its most successful software products including Internet Explorer, Word and Outlook Express.
The two operating systems solution would ensure consumer choice, while allowing Microsoft to preserve its existing business model.
The separate issue concerning interoperability is seen as the easier of the two to solve. Last August the commission said that Windows for PCs runs better with Microsoft's own server software than it does with competing products from companies including Sun Microsystems.
This advantage amounts to an abuse of Windows' dominance, and the commission urged Microsoft to reveal enough of the secret code that runs Windows to competitors to allow them to make server software that can run as smoothly with Windows as Microsoft's own server software.
The draft decision may order Microsoft to decide what must be revealed about Windows to ensure interoperability.
"If the company fails to comply with the order it would open itself up to legal action in any national court in the European Union," one person close to the talks said, adding: "A negative ruling would set a dangerous legal precedent for Microsoft."
Bolkestein warned that ordering Microsoft to reveal code, which is protected by copyright, could make the commission vulnerable to a legal challenge by the company at the European Court of Justice.
Paul Meller writes for IDG News Service