Mark Papermaster must know how Barack Obama, John McCain and, for that matter, Sarah Palin feel when they get shafted by the press.

The 25-year IBM veteran engineer is in the middle of a nasty civil case in which his former employer has sued to stop him from taking a new position in Steve Jobs’ inner circle as head of Apple’s iPod and iPhone division.

IBM (IBM) is trying to enforce a non-compete contract Papermaster signed in 2006. Apple (AAPL) is trying to get around it. The case is being heard in U.S. District Court in the Southern District of New York.

On Friday, Papermaster filed a declaration with the court, arguing that IBM and Apple are in very different businesses. That afternoon, a reporter for Information Week plucked this quote out of the 27-page statement and ran with it:

“I do not recall a single instance of Apple being described as a competitor of IBM during my entire tenure at IBM.”  (link)

The quote echoed through the blogosphere. Grizzled tech writers, including this one, treated it with various degrees of derision and incredulity. (See here, here and here.) How could anyone who joined IBM in 1982 possibly forget that Apple and IBM spent much of the 1980s locked in mortal combat for dominance of the PC industry — an iconic competition that spawned one of the most famous ads in TV history, Ridley Scott’s “1984“?

Well, we all owe Mark Papermaster an apology.

It turns out that his quote was taken out of context. What the Information Week reporter left out of his story on Friday [it was updated on Sunday] was the part where Papermaster acknowledged that before IBM sold its PC business to Lenovo, and when Apple sold servers to schools, they did in fact compete. The full quote reads:

“Until this litigation effort by IBM, aside from the divested IBM personal computer business and a single sale several years ago of Apple’s Xserve product to a university, I do not recall a single instance of Apple being described as a competitor of IBM during my entire tenure at IBM.” [PDF]

Papermaster’s statement goes on to describe — under penalty of perjury — the reluctance with which he received Apple’s overtures, the deference he showed his superiors at IBM, his caution to avoid even the appearance of impropriety (he left everything in his office except textbooks and memorabilia), and the respect IBM showed him for his integrity (rather than escorting him out of the building immediately — standard practice in Silicon Valley — they let him work in his office for nearly two weeks after giving notice).

Whatever Steve Jobs’ motives for hiring this guy — be it to run the iPod division or, as IBM fears, the chipmaking operations at P.A. Semi — Papermaster seems to be playing it straight.

On Friday, the court granted IBM preliminary relief and ordered Papermaster to immediately stop working for Apple. His lawyers have until Tuesday to register their objections. A hearing is scheduled for Nov. 18.

See The Papermaster chronicles for a timeline of events.

The Macworld Conference & Expo, Silicon Valley’s largest technology trade show, opens Monday. But the moment everyone is waiting for comes Tuesday morning, when Steve Jobs makes his annual keynote address at San Francisco’s Moscone Center.

Jobs has set a high bar for himself. At Macworld 2006, he introduced the first Intel (INTC)-based Macs — sparking a burst of sales that nearly doubled Apple’s (AAPL) market share from roughly 4% to something approaching 8% (link). At Macworld 2007 he unveiled not just the all-but-forgotten Apple TV, but also the iPhone — a device that in nearly everybody’s book turned out to be the machine of the year.

What can Jobs do to top that?

There’s no shortage of speculation. The Apple rumor machinery has grown so elaborate that for the second year in a row, Ars Technica’s John Siracusa has published a keynote Bingo card (available in PDF format here and in iPhone format here), with boxes to be filled in as Jobs makes his announcements, introduces his guests and trots out his trademark rhetorical flourishes. (The rules of the game are spelled out here.)

Nobody has yet shouted out “Bingo!” in middle of a Steve Jobs presentation — a moment brilliantly anticipated in IBM’s buzzword Bingo TV ad (link) — but this could be the year.

Some of Siracusa’s boxes are obviously more important than others. A couple (Mac Pro and Xserve) were preemptively filled last week, and there are a few key possibilities that he missed. Watch especially for:

• A Skinny MacBook. Probably the leading candidate for Jobs’ one-more-thing moment, it’s already been named — Macbook air, thin, nano and mini — and imagined in PhotoShop (see here, for example) by bloggers who should know better. Likely specs: 12 to 13-inch. LED backlit screen, under 3 lbs., half as thick as today’s MacBooks, 32, 64 or even 128GB solid-state flash drive, priced around $1,600.
• iPhone updates. A bump in capacity from 8GB to 16GB and maybe 32GB is expected, as well as a preview of the software developers toolkit (SDK) promised for February; we might even get a few demos from developers, like EA, who were seeded with the SDK last fall. A 3G iPhone and a Newton-type tablet are reported to be in the works, but not yet ready for prime time.
• Movie rentals. This is the item Hollywood is following most closely. It’s been widely reported that Fox and Disney are likely to make movies available on iTunes for overnight rental (at $3 to $5 for 24 hours) or for purchase for roughly the price of a shrink-wrapped DVD. If, as rumored, Paramount, Lions Gate and Warner Bros join them, the flood of fresh video content could breath new life into the Apple TV. (The Associated Press reported Sunday that Netflix (NFLX), anticipating such a move by Apple, will offer unlimited monthly video streaming.)
• DRM-free Music. Having famously championed the cause with his February 2007 Thoughts on Music memo, it would be surprising — and disappointing — if Jobs did not use this opportunity to announce a significant expansion of the DRM-free offerings in the iTunes Store, especially after the last of the major labels announced last week that they were putting their music on Amazon.com (AMZN) without copy protection.
• Microsoft (MSFT) Office 2008. No surprises here, since the reviews are already in, but an excuse for what should be the most lavish after-hours party of the show.
• The Beatles. It’s about time. Just in case, Yoko Ono’s John Lennon Educational Tour Bus mobile recording studio is making the trip from its Las Vegas unveiling at the Consumer Electronics Show to be at Macworld. A few hours after Jobs’ speech, there’s a press reception in the bus that’s co-sponsored by Apple.

You already see the flashbulbs popping, right? But is it enough? Apple’s marketing machinery is like a shark that must keep swimming or die. Even if nearly every square on the Bingo card were to be filled on Tuesday, would Jobs have delivered the kind of innovation and buzz the faithful have come to expect?

And then there’s Wall Street to consider. Apple was the high-flying tech stock of year, its share prices having more than doubled in 2007. But as a CNNMoney headline put it on Friday, “What’ve you done for me lately?” The stock fell nearly 30 points over the last two weeks, which could be taken as a measure of traders’ uncertaintly. (Or it could just be a well-timed pause to set up the Macworld effect, the short-term bump tech share prices often enjoy after a Steve Jobs’ keynote.)

No matter how high the bar, Jupiter Research analyst Michael Gartenberg is confident that Jobs will clear it. “This is a company that thinks in terms of strategy,” he says. “Do I think they’ll deliver something as disruptive as the iPhone? No. You don’t achieve that kind of disruption every week; it would be tantamount to getting into a whole new industry. But somehow Jobs always manages to meet expectations, even if the expectations are different.”

To find out how different, tune in Tuesday for Fortune senior writer Jon Fortt live blogging from the keynote at fortune.com/bigtech, video coverage from CNNMoney.com and our post-keynote analysis here on Tuesday afternoon.

Like the Oscars for the technical categories, which the Academy of Motion Picture Arts and Sciences hands out ahead of time rather than bog down the major Academy Award presentations, Apple (AAPL) is using this week to introduce new products that Steve Jobs feels aren’t worthy of his keynote at Macworld next week.

Today it announced two of them:

• A new Mac Pro, with two 2.8 GHz Quad-Core Intel Xeon processors, a 320GB drive, and up to 4 terabytes of internal storage for photo editors, designers and other memory hogs (starting price: $2,799). See here for press release.
• A new Xserve with a standard single 64-bit 2.8 GHz Quad-Core Xeon processor, a 80 GB drive, up to 3 terabytes of storage and an unlimited client license for Mac OS X Server version 10.5 Leopard (starting price: $2,999). See here for press release.