Windows Media Photo picture codec uses reversible color space conversion, a reversible lapped biorthogonal transform and a non-arithmetic entropy encoding scheme in its compression algorithm. Microsoft claims that Windows Media Photo offers a “perceptible image quality comparable to JPEG 2000 with computational and memory performance more closely comparable to JPEG and delivers a lossy compressed image of better perceptive quality than JPEG at less than half the file size, and that the lossless compression compresses images 2.5 times”.
Windows Media Photo will be supported in Windows Vista and also be made available for Windows XP.
There have been other developing graphics image format that try to replace JPEG format, which widely seen as outdated, as a standard format for pixel-graphics and images. The potential successors include JPEG2000 or JPEG Pro (now abandoned), and DNG by Adobe which more means to simplify the workflow for photographers shooting in RAW format.
And now, comes Windows Media Photo format. Windows Media Photo specification can be downloaded from Microsoft.
Update: Windows Media Photo was renamed HD Photo, and then to current name of JPEG XR.