WASHINGTON (CNN/Money) - Under a third day of cross-examination, Microsoft Chairman Bill Gates conceded that other than one main difference, Microsoft already makes a version of Windows XP that can have its software, like Windows Media Player and Internet Explorer, removed.

Gates and his company have repeatedly said that offering versions of Windows without the other software, as would be mandated under the non-settling states' proposed remedy -- would be impossible because the programs are so tightly woven into the operating system that even its designers can't discern where one begins and the other ends.

Government lawyer Steven Kuney asked Gates a series of questions about Microsoft's Windows XP Embedded -- a version of the operating system designed for use on devices like ATM machines, cash registers and television set-top boxes. Windows XP Embedded allows the makers of those devices to install only the modules of Windows XP that they choose. Kuney displayed a series of screen shots of the installation process showing that among the components are Internet Explorer, Windows Media Player, Microsoft Messenger and Outlook Express.

Gates admitted that if Windows XP Embedded had those modules removed, it would still operate normally other than that it wouldn't do the things normally done by those programs.

Kuney then asked whether one could install all the components and have a functioning version of Windows XP.

"You can build an OS that will run on a PC and support virtually all the applications running on XP home, correct?" Kuney asked.

Related Stories       Bill Gates takes the stand Gates gets grilled in court

"Yes and no," Gates replied.

Gates then explained that any software that runs on the consumer version of Windows XP would run on that PC as long as it is installed as part of the initial set-up. The software would run fine, but that PC would not then be able to install new software because Windows XP Embedded lacks installer software.

But Gates said that the lack of installer software was essentially the only difference.

"What you would end up with is basically all of Windows XP except for the installer piece," said Gates.

Earlier, Gates also made a key concession about whether Windows Media Player could be removed from Windows XP. Gates had testified that removing the software would essentially break Windows, because so many parts of the operating system rely on it, and the system would crash every time it tried to call on some Media Player function that wasn't there.

But Gates conceded that Microsoft could make a version of Windows without the Media Player that instead of crashing, simply displayed an error message telling the user the software was unavailable.

Gates is expected to finish his testimony by the end of Wednesday's court session.

The courts have found that Microsoft (MSFT: down $0.79 to $53.20, Research, Estimates) violated antitrust laws. The current hearings, under U.S. District Judge Colleen Kollar-Kotelly, will decide what restrictions will be imposed on Microsoft as a remedy for that illegal behavior. Gates has repeatedly complained that the remedies under consideration would be technically impossible to comply with or would force Microsoft to withdraw its Windows operating system from the market and force widespread layoffs at the company.

The Department of Justice and half of the states involved in the original antitrust case reached a settlement with Microsoft in November. But nine states -- California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia, along with the District of Columbia -- broke with the Justice Department's remedy proposal, arguing that it wasn't strong enough. Judge Kollar-Kotelly will decide what sort of remedies are appropriate based on the hearings now in their sixth week.