Microsoft's (Nasdaq: MSFT) Project Natal has been a hot buzzword over the last year, ever since the new Xbox controller was first demonstrated at the 2009 E3 trade show. Using an intricate system of cameras, microphones, and motion detectors, the controller lets you play video games empty-handed.

It's the logical next step after the Nintendo (OTC: NTDOY.PK) Wii, whose controllers act less like joysticks or button aggregators, and more like magic wands. Just stand in front of your TV and perform some gestures or a little dance, and the onscreen character should act accordingly. Without intimidating control sticks, Microsoft hopes to lure nontraditional gamers into the Xbox fold, from toddlers to grandmas.

Microsoft's new controller is now known as Kinect, a portmanteau of "kinetic" and "connect" that seems to describe the game experience fairly well. Due to hit store shelves in November, the Kinect will play a key role in this year's holiday sales story. Sony (NYSE: SNE) has a similar but somewhat less radical motion-sensing controller named Move in the works, too, and Nintendo's uniqueness is fading fast. Both Kinect and Move will cut right to the heart of Nintendo's core market -- people who are not hardcore gaming nerds.

The current crop of consoles represent enormous development investments and efforts from all three big-name system makers. Nintendo might eventually make the jump to high-definition graphics and modernized hardware in general, but it's getting harder to improve on the state of the art. As much as Activision Blizzard (Nasdaq: ATVI) and Electronic Arts (Nasdaq: ERTS) would love to see a fresh round of feeding frenzy around new batches of console hardware, these new controllers are as close as we'll get to a watershed event in the next few years. That explains why Microsoft went big-budget with this product presentation, enlisting Cirque du Soleil to choreograph a grand spectacle at the system's launch party.

Is Kinect a game-changer or just another useless gizmo? The truth lies somewhere inbetween, I suspect, but you can voice your own opinion in the comments below.

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