Microsoft calls it "Project Natal." It's a new piece of technology that uses depth-sensing cameras, microphones, and specialized software to enable voice and facial recognition, full body motion sensing, and the ability to play just about any game without a controller in your hands.
At today's Microsoft press conference, which served as the unofficial start to E3 (the show floor doors don't open until tomorrow), Steven Spielberg walked out on the stage and talked about a 'controller' that "not only recognizes your thumbs and fingers, but your entire body." With it, we'd be able to wrap our fingers around imaginary steering wheels, leap onto imaginary skateboards, or judo-duel with imaginary enemies, seeing all our free movements reflected on-screen, in real time.
Now, granted, we had an idea that this sort of motion sensing was on the horizon, and had even seen creative director Kudo Tsunoda flipping through dashboard menus with simple waves of his hands. But on stage today, Kudo stepped in front of the camera and was instantly recognized and logged into his Xbox Live profile. His avatar matched his every movement (if a little jerkily), and he proceeded to play 3D breakout with his body as the paddle.
It's certainly exciting, but it's also nowhere near ready for public consumption, so Microsoft had a few other announcements as well. Xbox Live is getting a bevy of new additions, including full 1080p streaming support for all its movies and TV shows (that's streaming, not downloads) in a system Microsoft is calling "Instant-On 1080p HD." They've also partnered with three other companies: the UK's Sky TV to bring live video to the console, and Facebook and Twitter to integrate social networking into your dashboard.