Finnish Phone maker Nokia’s decision to stick Microsoft’s Windows Phone 7 (WP7) on its smartphones became slightly clearer as it emerged that Nokia was given a billion reasons to make the switch.

Microsoft is said to have agreed to pay Nokia $1 billion to put WP7 on its devices. As part of the deal signed by Nokia CEO Stephen Elop and Microsoft CEO Steve Ballmer, Microsoft will help Nokia flog phones running its WP7 operating system.

Bloomberg’s sources report that the Nokia-Microsoft pact will last for at least five years, with Microsoft taking a financial hit early on, as part of the $1 billion will be paid to Nokia before it starts shipping WP7 devices. Nokia will pay a licensing fee to Microsoft on every WP7 device it flogs.

Microsoft might eventually recoup the outlay through more than just licensing fees, since the payment includes access to Nokia’s patent portfolio, including Navteq mapping technology. As part of the deal, Nokia and Microsoft will share in revenues generated from advertising and search.

In effect Microsoft’s $1 billion buys it a better than average chance at enjoying some success in the smartphone market. It also stopped Nokia from adopting Google’s Android operating system and thus limited any revenue that might have generated for Google.

Given the number of devices that already run the Android OS, it’s unlikely that Google would have offerred a competitive bid to get its operating system onto Nokia handsets.

The question is whether Nokia devices running WP7 will be worth Microsoft spending $1 billion.

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