Variously described as "astounding", "revolutionary", and - most commonly - "creepy", the tech demo that Peter Molyneux presented at E3 to show off Microsoft's Project Natal ended up being one of the main talking points of the show.

My reaction was "bullshi-".

Peter Molyneux built up a grand reputation as a visionary game designer some 20 years ago, in his years at Bullfrog Productions designing and developing games like Populous I & II, Syndicate, Theme Park, Magic Carpet and Dungeon Keeper - games which, if you're old enough to remember them, you most likely have fond memories of the many hours spent with them.

Alas in recent years Molyneux seems to have squandered that reputation, repeatedly making bold claims about his games during their development which they fail to live up to when released. He is the master at thinking up new concepts which seem brilliant in theory, which he enthusiastically espouses and which get everybody talking, but which do not work out in practice. Black & White, Fable, Black & White 2 and Fable 2 all suffered from this blight.

The tech demo Molyneux showed at E3 (watch the video below if you haven't seen it) demonstrates a virtual character, a boy named Milo, that the player can interact with using Natal's motion camera and voice recognition technology. That is to say, Milo can "see" you and react to your gestures and body language, and he can "hear" you and react to you when you speak to him.

The "player" in the video, a Lionhead staff member named Claire, says hello to Milo and strikes up a conversation. Milo appears to respond very naturally with appropriate replies and body language.

However, the impression I was left with at the end of the video was that it was most likely all an elaborate con. The demonstration was not performed live at E3; it was merely a pre-recorded video. So it would have been very easy to script and pre-render the entire thing, with no actual recognition required. If it were real, then it was a tremendous amount of effort to go to to produce something that could surely only be a tech demo; it didn't look like an actual game. Combine that with Molyneux's reputation for big talk, and my reaction was that the demo was a pack of lies. It was a fake tech demo, I thought, just meant to get people talking, and which we would never see nor hear from again. In five years it would be remembered only as another of Molyneux's daydreams, I decided.

But maybe I was wrong.

Molyneux did promise that a select few people would get to try Milo hands-on for themselves, behind closed-doors, at E3. A writer for Variety magazine got to see it and has now posted their take. Not only does Milo really respond as shown in the video, but he is part of a real game, according to Molyneux.

"In order to introduce yourself to Milo, you have to stand in front of Project Natal’s camera and clearly say your name, then exit camera range," wrote Variety. "The next time you step in front of it and wave or say hello to Milo, he’ll hop off of his swing and greet you personally. He even noted the change of clothes of one of the Lionhead employees during the demo. ('You’re wearing green today. It looks good on you.')"

While it might indeed be fully functional, calling Milo an "artificial intelligence", as some did after seeing the E3 demo, might have been going a little far however. Milo has a huge stack of pre-recorded lines he can speak and actions he can perform. When you, as the player, say a word or phrase that Milo recognises, he will respond with a pre-determined reaction. Thus the depth of interaction is limited to what has been specifically programmed into the character.

"Milo is programmed to recognize particular keywords," Molyneux explained to Variety. "If he doesn’t hear something he recognizes, he’ll nod, smile, act frightened or become bored, based on the tone of your voice. Asking him questions, at present, really confuses him."

Milo can recognise between 500 to 1,000 words at present, according to Molyneux. But "once the game ships", they plan to push downloaded updates out on a regular schedule, possibly even nightly, so that Milo "can discuss current events with you." Molyneux gave an example of "Milo being upset that Adam lost on 'American Idol'."

It sounds as though Milo is destined to be a sort of 'virtual friend' application, in the same vein as pet simulation games like Nintendogs. Whether he will ever see the light of day remains to be seen - most people who have tried it seemed "a bit uncomfortable" having a conversation with a computer program. If Milo's range of reactions and things he can recognise are not wide enough, the experience will just be awkward.

And what kind of loser wants a virtual friend anyway?

But I can imagine how the technology could apply to a real RPG, though. You'd be playing Fable 3 using Natal's motion controls, swinging your virtual double-bladed axe or longsword just by swinging your own arms around, then you'd walk into a village tavern and the comely wench behind the bar would strike up a conversation with you - which you would respond to by directly talking to your screen.

Yes, I have seen the future of gaming: it's all about making you feel like a twerp.