Microsoft has just unveiled what it describes as a revolutionary new way to play Xbox 360 video games on HDTVs without the need for a controller.

Called Project Natal, the sensor, which combines an RGB camera, depth sensor, multi-array microphone and custom processor in one device, could have uses far beyond just gaming.

One analyst, Michael Pachter of Wedbush Morgan, said he thought Project Natal is intended less as a game control scheme than it is as an easy-to-use dashboard control scheme.

He also sees it as a means for Microsoft to dampen the launch of an expected high definition upgrade to Nintendo’s Wii console.

Unlike 2-D cameras and controllers, Project Natal tracks a user’s full body movement in 3-D, while responding to commands, directions and even a shift of emotion in the voice.

The idea that the device could have an impact far beyond gaming was echoed by filmmaker Steven Spielberg.

Introducing the device at the recent the Electronic Entertainment Expo (E3), he said it was a "pivotal moment that will carry with it a wave of change, the ripples of which will reach far beyond video games".

Microsoft says that what sets the Project Natal sensor apart is the fact it’s not light-dependent. It can recognize users just by looking at their face, and it doesn’t just react to key words but understands what is being said.

So, for example, if a user calls a play in a football game, players will actually respond.

Spielberg said the next step in interactive entertainment is to make the controller disappear.

"With Project Natal, we’ll see games that bring everyone together through technology that actually recognizes us," he said.

During its briefing, signalled its strategy of turning the Xbox 360 into an internet and media hub for the living room by opening the Xbox Live dashboard up to the internet.

It announced new Xbox LIVE services, including instant on 1080p HD streaming movies and television to Facebook and tailor-made for a user’s TV.

Starting this fall, a selection of movies and TV shows from Zune video on Xbox 360 will be available to start and stream instantly.

Microsoft also announced it will more than double the number of markets where Xbox LIVE offers its TV shows and movies, growing from eight to 18, by adding Australia, Austria, Belgium, Denmark, Finland, Netherlands, New Zealand, Norway, Sweden and Switzerland.

Xbox LIVE members in these markets will have access to instant on 1080p video.

New Xbox LIVE Video Marketplace advancements also came for the US,UK and Ireland.

Microsoft also announced a new lineup of Xbox 360 games, including Forza Motorsport 3, Alan Wake, Halo 3: ODST and The Beatles: Rock Band.

Below is a promotional video for Project Natal:

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