Something’s stirring in Redmond. Microsoft’s discovered small business. Again. It’s latest attempt at small corp takeover: Windows Live Custom Domains. If you have 20 email accounts or less, you can point your DNS MX records toward Washington. Thereafter, the House That Bill Gates Built will inspect each and every message that passes in and out of your organization.

Redmond will know every player on your team, what you mail, when you mail, and who you mail to.

Predictably, Microsoft’s pitch for Windows Live Custom Domains Beta sounds less ominous:

Already own your own Internet domain name? Have us host e-mail and IM for you in a domain you already own. Create up to 20 e-mail accounts within your domain; Get a 250 MB inbox for each account (25 MB for Hotmail users); Check your e-mail from any Web-enabled PC; Junk e-mail filter protection using Microsoft SmartScreen technology; Virus scanning and cleaning of e-mail; Seamless access with MSN Messenger, MSN Spaces, etc.

All in all, Windows Live Custom Domains is a great idea, so long as Microsoft doesn’t mind killing the local dealers and ISPs who fed the 800 pound gorilla. Local dealers help small bizzers choose software, then install and keep it running for them. Similarly, local ISPs manage small orgs’ DNS, mailing and other applications. It’s a lot of work, but it pays the bills.

Windows Live Custom Domains will change all that. It will delete many local sales of Windows mailing software, along with the supporting hardware and software, including the Windows network. It will also kill Windows-based email services provided by ISPs. Add the impact of Microsoft’s Windows Live and Office Live, and you’re looking at the death of local Microsoft-based sales as we know them.

Linux, BSD and… Apple… developers are licking their chops. Maybe they won’t blow it. Again.