By Peter Kaplan

WASHINGTON (Reuters) - A federal judge on Wednesday sharply questioned attorneys on both sides of the Microsoft Corp. MSFT.O antitrust case, still weighing how far-reaching sanctions against the software giant should be.

U.S. District Judge Colleen Kollar-Kotelly quizzed lawyers in the landmark case about whether she should impose sanctions on Microsoft that cover products like handheld computers and network servers, and whether she should order the company to make features of its Windows operating system removable.

Kollar-Kotelly said legal precedent gave her broad powers to impose restrictions on Microsoft, as long as they are aimed at misdeeds that are of the same type or class as those in the court rulings against the company.

But she challenged an attorney for nine states pressing for strong sanctions against Microsoft to defend their far-reaching demands, including one that would require Microsoft to offer a version of Windows that can have features stripped out and replaced by rival software.

These nine states, including California, Massachusetts, Iowa and Connecticut, have refused to sign on to a settlement Microsoft reached in November with the Justice Department and nine other states.

The dissenting states say a modular version of Windows is needed because an appeals court ruled that Microsoft had illegally "commingled" computer code of its Internet Explorer browser with the operating system to defeat a rival browser produced by Netscape.

HIDING ICONS

Microsoft argues that Windows would not work properly with some features removed. Under the proposed settlement with the Justice Department, Microsoft would let computer makers hide desktop icons for some Windows features.

Kollar-Kotelly pressed the states on that point.

"It appears that restoration of end-user access would cure the ill effects of commingling," she told states attorney Steve Kuney. The demand "seems to go beyond the fairly limited discussion by the court of appeals on commingling."

Kuney countered that stripping out Microsoft computer code was the only way to restore competition and comply with the appeals court ruling. "To us it is an unremedied ongoing violation," he said.

The judge also goaded the states to back up their argument that the sanctions should be designed to protect products that have emerged since the case began four years ago, such as interactive television set-top boxes.

Kuney argued that the products should be included because they were potential threats to the Windows monopoly.

"It sounds like any new technology would be presented as a platform threat," the judge told the states' lawyers.

But the judge also had some sharp questions for Microsoft's attorneys as well. She asked them to explain how the settlement would address the commingling violation.

Microsoft attorneys cited a report from one of the states' own economists, who said that removing the icons for Windows features would strike "an excellent balance" by giving consumers a choice of software features without damaging Windows.

A federal appeals court last June upheld the original trial court's finding that Microsoft illegally maintained its Windows monopoly.

But the appellate judges rejected breaking the company in two and sent the case back to a new judge, Kollar-Kotelly, to consider the most appropriate remedy.

Last Friday, Microsoft's final witness left the stand, ending 32 days of testimony -- including an appearance by company chairman Bill Gates -- on how the company's antitrust violations should be remedied.