Microsoft has taken the wraps off its upcoming Windows Phone 8 operating system, revealing an OS that looks to blend the functionality of desktop PC and mobile devices

The company announced today at its Windows Phone Summit in San Francisco, Windows Phone 8 will share its NT kernal and core operating system with Windows 8. This means the mobile version of the OS will support the same file system and drivers as the company’s desktop operating system, and allows Windows Phone 8 devices to support multi-core processors and removable MicroSD storage. With the new OS, app developers will be able to create apps that will run on both Windows 8 and Windows Phone 8, coding in C and C++.

Despite the shift to the NT kernal, existing Windows Phone 7 apps will still be able to run on Windows Phone 8. Microsoft will release a new Windows Phone SDK later this summer that will support development of both Windows Phone 7 and Windows Phone 8 apps.

Microsoft also revealed Windows Phone 8 will include several features designed for business, a move that could help Microsoft muscle into RIM’s share of the shrinking, but still sizable enterprise market. Windows Phone 8 will support on-device encryption, secure booting and private app distribution, three features aimed squarely at IT professionals looking for greater control over the devices and applications their employees use as more companies elect to let employees bring their own smartphones into the office.

Windows Phone 8 will support three resolutions and scale apps automatically to fit them. Microsoft also unveiled a new mobile wallet feature that will store credit and loyalty card information, support NFC payments and allow developers to offer in-app purchases. Bing Maps will be replaced by Nokia Maps that offer turn-by-turn navigation, ViOP apps like the Microsoft-owned Skype will have deeper OS integration and the OS will come with a new and improved version of Internet Explorer 10.

The biggest surprise of the day was the lack of backwards compatibility with earlier Windows Phone handsets like the new Nokia Lumia 900. According to Microsoft, existing Windows Phone devices will not be able to run Windows Phone 8, and will instead receive an incremental upgrade called Windows Phone 7.8 that will bring some of the new OS’ user interface changes to the older devices.

The first Windows Phone 8 devices will be available in the fall, with Nokia, HTC, Samsung and Huawei lined up to be the first OEMs offering the phones. Microsoft did not reveal an exact date for when the devices would be available or how much they would cost.