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An interesting report from Eurogamer today quotes an unnamed “development source” detailing Microsoft’s plans for the next version of its Kinect sensor for Xbox 360 — saying it “will be so powerful it will enable games to lip read, detect when players are angry, and determine in which direction they are facing.”

Microsoft generally doesn’t comment on these types of product plans so far in advance, so we don’t know if it’s true, but it’s a good reminder that the current Kinect is just the first version. To avoid the fate of the Nintendo Wii, which has seen its sales decline as interest has waned, Microsoft will need to keep innovating rapidly and upgrading the Kinect’s features.

Separately, Microsoft is hoping to create a market for Kinect on Windows, announcing plans last week to develop a specialized version of the Kinect sensor for personal computers, to support its Kinect for Windows commercial licensing program and software development kit.

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