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Microsoft today announced Project Natal, an attachment for the XBOX 360 that uses a camera, depth sensor and multi array microphone to control action on-screen instead of the traditional hand-held controller. The device sits below your tv and allows multiple users to interact with virtual objects and use voice controls to dictate commands in-game. The device is shown on-video allowing the user to counter moves from a kung-fu master and steer a formula 1 car around a race track.

Arguably the most impressive demo was brought to us by Peter Molyneux and revolved around a little boy named Milo. Milo would ask questions and respond to your answers, even reacting to the tone in your voice. This demo as well as others are said to be on display behind closed curtains on the E3 show floor. No date was given during the press conference, but in an interview afterwards, Kudo Tsunoda told G4 that we would not see anything until at least 2010.

Hit the jump to check out the Natal trailer.