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Peter Molyneux explains why his infamous Kinect game Project Milo was never released
(www.videogameschronicle.com)
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Hardware being changed up makes sense. Feels funky that MS would pull a bait and switch for a game project, but its hard to say if that was MS or Molyneux being funky since they both have a history.
Kinect being nerfed is something that was known.
The device was supposed to handle the movement analysis on its own with an internal processor, but they cut costs and had it processed by the console instead. Causing a lot of extra load on it, and because of that kinect games probably performed a lot worse than they could have, and were probably simplified quite a bit.
Stop Skeletons From Fighting has a good video about kinect : https://youtu.be/MmJ3LICVtsY
Of course, Molyneux is Molyneux, and just because of that, even with the superior kinect prototype, I'd call bullshit on almost all of the Milo demo.