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When I worked in the mobile group on Smartphone and Pocket PC, I used to get asked this question all the time by operators and press. Well, it's finally happened - but not a handset partnership. Nokia will use Live Search for N Series and S60 series phones. Surprising to me given their preference for Opera's browser and I think they had used Yahoo in the past but I may be wrong there.
A small but potentially very broad reach partnership for Microsoft. Not that it will make me switch my phone to a Nokia. I'm still loving my QTEK 8500 but very tempted with an iMate SPL
Link to Nokia Adds Microsoft Live Search