Apple Inc. appears to have clearance from an industry group to block rival Palm Inc.'s Pre phone from connecting with iTunes software. 

Palm complained to the group in July that Apple was improperly using its USB vendor code to block competitors. But the group disagreed in a letter sent to both companies Tuesday.

The letter also warned that if Palm updates the Pre's software to include Apple's vendor code — a move Palm indicated in its complaint that it planned to make in order to restore the iTunes feature — it would violate the group's rules.

The group asked Palm to clarify its intent and respond within a week about the potential violation.

Palm spokesman Derick Mains said the company contacted the USB group because it believes consumers should be able to decide how they use media they own that is not subject to copy-protection restrictions. He said Palm is reviewing the letter and will respond if it thinks it is appropriate.

Apple spokesman Tom Neumayr said the company had no comment.

The iTunes spat is part of a larger rivalry building between Apple and Palm, whose chairman and CEO, Jon Rubinstein, once was an executive at Apple and oversaw the iPod. The Pre includes a "multi-touch" screen like Apple's iPhone, which lets users do things like pinch the screen to zoom in and out of photos.

PreCentral reported earlier today that webOS 1.2.1 will be delayed but that the new release will fix the iTunes sync. Considering it was report that the iTunes initial sync was just shy of two and a half hours to repair, we would have to bet that we haven't heard the end of this battle.

In a press release today accompanying Palm's first quarter earnings report, CEO John Rubenstein stated the following:

"Due to importance of webOS to our overall strategy, we've made the decision to dedicate all future develoment resources to the evolution of webOS. Which means that going forward, our roadmap will include only Palm webOS-based devices."

This is not necessarily the end of the Treo phone but it sure means Palm is betting all it's cards on the webOS platform. With the announcement of the Pixi, you can see a Treo-esque type design quality to the handset. We would expect all future Palm devices to carry the webOS platform exclusively and give Palm a serious edge in the coming 12 months of devices released with webOS.

Engadget got their hands on an early model of the Palm Pixi. The new device is headed over to Sprint this holiday season. We will have our own review here shortly but until then, head on over to engadget and check out their review.

UPDATE: After just a few hours, Sprint has decided to pull the $100 credit offer. Saying that it was put into the system in error...

Today Sprint has announced all  new Sprint customers purchasing a Palm Pre on a new two year contract will receive a $100 service credit instead of a cash or rebate. Although this is not a additional rebate or cash in hand, you will receive a credit of approximately $33.33 per month for three months on your Sprint bill. The price remains $199 with a $100 dollar mail-in rebate if you sign up before before October 31, 2009.

While some analysts said the offer could help boost sales, Piper Jaffray's Chris Larsen said that the discount likely means Sprint is having a tough time adding new customers.

"We believe that the new promotion could indicate that net additions have been trending lower than the company expected for the third quarter," Larsen said in a research note.

RBC analyst Mike Abramsky called the trio of the best smart phone makers on the market "the new world order" includes Apple, RIM, and Palm, and said that they are are positioned for leadership in the cell phone industry, thus sending estimates and price targets higher for all three companies.

• Apple price target jacked to $250 from $190, FY11 estimates $50.3 billion revenue (18% y/y growth) and $8.25 EPS on 49.3 million iPhones. Near-term estimates raised, too.
• RIM price target jacked to $150 from $100, FY11 estimates $21.2 billion revenue (32% y/y growth) and $5.43 EPS. Near-term estimates raised, too.
• Palm price target jacked to $25 from $18, FY11 eatimates $3.2 billion revenue (52% y/y growth) and $0.75 non-GAAP EPS. Near-term estimates raised, too.

Why Palm? The company has near-term challenges but the "special sauce to lead", Abramsky says, including WebOS platform.

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