Updated from 1:37 p.m.

Google ( GOOG) says it will have an Android-powered phone on the market in 2008, rebutting a source's claims to the contrary.

According to a source familiar with the situation, although a large number of people are hard at work on the Gphone and the open-source operating system/platform for mobile devices (Android) the actual Gphone will not be ready for release this year.

That would mean that Apple's ( AAPL) second-generation iPhone, and the ever-growing list of about-to-be-released handsets (like the Garmin ( GRMN) nuviphone, Research In Motion ( RIMM) Blackberry Bold and Thunder, Sprint/Samsung Instinct and SonyEricsson Xperia) will now have a huge head-start over the Gphone.

However, a Google spokesperson says "We're still on track to announce Android-powered phones this year. Some of our partners are publicly stating that they plan to ship Android phones in the fourth quarter."

Even More Ideas for the Next iPhone and BlackBerry

The source on the initial story would not speculate on the possibility that other devices that might run on variants of Android would be ready in time for the Christmas shopping season, nor would the source elaborate on exact reasons for the delay or a possible release date for the Gphone or various Android variants.

Android, based on the Linux operating system, is being jointly developed by Google and the Open Handset Alliance. The 34-member group includes mobile operators ( China Mobile ( CHL), NTT DoMoCo ( DCM), Sprint Nextel ( S), T-Mobile ( DT), Telecom Italia ( TI), Telefonica ( TEF)), software companies (including eBay ( EBAY), Google, Living Image, NMS, Nuance Communications, PacketVideo, SkyPop), semiconductor companies (including Broadcom ( BRCM), Intel ( INTC), Marvel ( MRVL), Nvidia ( NVDA), Qualcomm ( QCOM), Texas Instruments ( TXN)) and handset manufacturers (HTC, LG, Motorola ( MOT) and Samsung).

Missing from this impressive list of Android companies are some very well-known cell-phone leaders AT&T, Nokia ( NOK) and Verizon's ( VZ) Verizon Wireless.

We were allowed to get a glimpse of the first official prototype of an Android phone at the Mobile World Congress in Barcelona, back in February. At that same show, Samsung said that it won't debut an Android powered phone until 2009.

Developers will be able to create programs for Android in a Java-like language that uses special Google-developed Java code. The Android SDK (software developer's kit) was released back in November of last year.

Shares of Google were recently trading at $574.27, down 1.97% on the day.
Gary Krakow is TheStreet.com's senior technology correspondent.