Is Microsoft Corp. (NASDAQ: MSFT) reconsidering how much it really wants to spend on yet another digital media effort? Shares of Barnes & Noble, Inc. (NYSE: BKS) are getting clipped hard on Monday on a market rumor that Microsoft is backing away from a $1 billion deal for the rest of the Nook which had been widely reported on (and traded on) last week.

If you will recall, the first Microsoft deal for $300 million took Barnes & Noble much higher. B&N shares screamed higher to about $26 for a peak the last time around, with shares peaking around $23 last week on the rumored deal. More reports have surfaced which question or even refute the rumored transaction last week.

The big risk here by our take is that Microsoft might have been risking too much credibility. Calls are out every week to call for the ouster of Steve Ballmer as CEO. Bill Gates is all but history as far as his promotion of the company now. The software giant took a huge $6.2 billion non-cash accounting writedown on the aQuantive just last year.

The dollar amount matters little, because the company has billions upon billions of dollars to play with. What mattered at the time was that Microsoft said its expectations for future growth and profitability were lower than previous estimates and it admitted that the aQuantive acquisition did not accelerate growth to the degree anticipated.

If online media and advertising wasn’t enough, how could reproducing paper books on a device be a huge help for Microsoft? The Nook already faces massive challenges from Amazon.com inc. (NASDAQ: AMZN) via the Kindle and Apple Inc. (NASDAQ: AAPL) from the iPad. Others are coming on strong into the tablet market as well.

Maybe Microsoft just does not want another egg to be thrown in its face. Shares are of Barnes & Noble are down 12.6% at $20.40 in active trading. Microsoft shares are up 0.25% at $32.78 so far this Monday.

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