It appears that Microsoft’s need to change everything in their new handsets also includes what the applications actually are. The .xap is a .zip file with a different name. That is all. Apparently it is also the same system that Windows 7 uses for “widgets’” and Google uses for Android’s “apk”.
You can get a sample .xap from here, but you will need to change the extension from .zip to .xap.
Basically Microsoft added one more step to all of us that will take full advantages of our own devices and do whatever we want to do to them. Here’s looking to customized Windows Phone 7 before it’s even released. Check out the full thread from XDA member and moderator Da_G here.