Note: This story has been updated.

Smartphone maker ZTE has publicly dissed Microsoft, saying the Windows Phone 7 mobile operating system is not popular enough, nor has Microsoft done enough to make it so, and that ZTE sees no reason for it to develop a smartphone running WP7. This is not the kind of news Microsoft likes to hear as it struggles to gain traction for its well regarded but not well received OS.

The comments, attributed to Wu Sa, ZTE’s U.K. director of mobile device operations, were reported in the Wall Street Journal. ZTE may not be a household name like phone makers Samsung, Motorola or Nokia, but it is the fifth largest handset maker globally. Wu told the Journal that ZTE is testing WP7 phones in its laboratories but has no immediate plans to bring a WP7 phone to market. ZTE phones run the Google Android OS and it makes carrier-branded phones such as those running on the Orange network in Europe.

It’s critical for Microsoft to beef up its marketing of WP7 if it wants manufacturers to invest in the platform: “Whether we expedite that process will be driven by the market demand,” Wu said.

ZTE is not the first handset maker to express disappointment with Microsoft over WP7. An LG Electronics marketing executive, James Choi, lamented in January that Microsoft’s marketing campaign for WP7 has made “the visibility less than we expected.” After an initial advertising blitz around the WP7 U.S. launch in November -- the drop the phone in the urinal ads -- most advertising I’ve seen of WP7 has been by carriers. Update: A writer for Business Insider has noted new ads for WP7 airing during the NCAA basketball tournament that appear to be jointly tagged by Microsoft and AT&T.

But as I’ve noted before, the launch of new handsets running WP7 seems to be muted, although some models originally priced at $199.99 at launch have since been marked down to $99.99; pricing is tied to a two-year service contract. But news that Sprint is going to start selling the HTC Arrive (see photo) running WP7 tomorrow, and that Verizon is going to begin selling the HTC Trophy on March 24th, haven't exactly sparked Cairo-like dancing in the streets. The Verizon news, for instance, has been overshadowed by the continuing rush to buy Apple iPhones now available there.

To be sure, Microsoft scored a major coup in February by getting Nokia, the world’s top selling mobile phone maker, to adopt WP7 but that deal carries its own set of risks. While loudly touting the Nokia deal, Microsoft still has been largely silent about how WP7 is selling beyond platitudes that they’re pleased with the response.

As I’ve written before, WP7 is a competitive platform. I’m demoing another WP7 phone and outside of the annoyance of being pressured into signing up for Windows Live to use many phone features, I still like the way the OS works and how it seeks to simplify the user interface.

But I think Microsoft should understand that it doesn’t have an engineering or a product problem, it has a marketing problem and that it needs to address it.