According to the Reuters news agency, the pirated copy appears to be the beta version distributed at a developers' conference in Los Angeles in October.
A Microsoft spokesman said the software is "risky" to run as it's not yet a finished product, said the report.
The product has been found in the Holiday Plaza Shopping Mall in Johor Baru, the Malaysian city bordering Singapore, which is popular with shoppers from both countries.
In 2001, Malaysian pirates managed to crack Microsoft's Product Activation anti-piracy feature to sell illegal copies of Windows XP.
The software copyright group the Business Software Alliance estimates that in Asia-Pacific, one out of every two Asian companies use illegal software.
Across the region, monetary losses resulting from piracy were up significantly, to US$4.7 billion from US$4 billion a year ago, and the region's piracy rate rose 3 percent to 54 percent.
The use of illegal software in Singapore and Malaysia is on the rise--the island-state registered a 51 percent piracy rate, up by 1 percent, and its neighbour witnessed a hike of 4 percent to 70 percent.
Longhorn is built around three major advances--a new graphics and presentation engine known as Avalon, a new communications architecture known as Indigo, and a new file system known as WinFS that borrows from Microsoft's relational database technology.
