Last November, Microsoft’s Windows OS market share dropped to 89.6% according to market research firm Net Applications. That marked the first time the OS held less than a 90% share of the market. In May, that share was down to 87.8%, while Apple’s MacOS was up to 9.8% from November’s 8.9%.

The news of a Google OS could ice its relationship with Apple, where Google Chief Executive Officer Eric Schmidt has a seat on the board of directors. The two companies have already been competing on the mobile phone front with Google’s Android OS competing with Apple’s iPhone.

In November 2007, when Google announced it would develop the OS for a line of T-Mobile USA Inc. phones, some analysts were surprised that Schmidt would remain on the board of operations at both companies.

In May, The New York Times reported the Federal Trade Commission launched an inquiry into the close ties of the two boards. And now with the Chrome OS news, respected tech site CNET is calling for Schmidt to step down from Apple’s board.

When Chrome OS is released, it will mark the third major front in its war with Microsoft. The other two are cloud applications and search.

Microsoft is attempting to chip away at Google’s ubiquitous search engine with its newly launched Bing search engine. To a lesser extent, Google competes with Microsoft with its Chrome web browser (which has 1.8% of the market share in May versus Microsoft Internet Explorer’s 65.5%) and on the mobile phone front, pitting its Android OS against Windows Mobile.

No pricing on the OS is available, but there’s a good chance Chrome OS-open source software that will have its code readily available for anyone to see-could be free and serve as a funnel to Google’s other products and lucrative ads.

Microsoft is set to debut its latest version of Windows, Windows 7 on October 22. Market research firm International Data Corp. ) expects Windows 7 to become the dominant OS by 2012.

Shares of Google were boosted 1.48% by the news yesterday, closing at $402.49, up $5.86.

(By Bob Blandeburgo)