Lionhead Studios and its creative madman Peter Molyneux managed to blow minds during the Microsoft E3 conference, even trumping Project Natal itself to some degree.

Revealed to have been Project Dmitri, Molyneux confirms the game is called Milo and Kate where gamers interact with a virtual boy and his world. All of this is done through Natal's camera.

The game will feature Milo the ten year-old boy and his dog, with Molyneux affirming this is a videogame and not just some glorified tech demo for Project Natal. Players will interact with Milo who is capable of registering your emotions through from your face and voice.

"Molyneux asked us to imagine leaving Milo on the screen, and allow various family members interact with him. Milo would have a different relationship with each person, and would even reference you (or them) in conversation with the other. In other words, think of Milo as a family friend ... who just happens to live in a box on your wall," writes Joystiq.

"Despite Molyneux's assertion that it incorporates over five years of development work on the emotional AI, "Milo" is still a very early piece of technology." Skynet here we come.

Lionhead hopes that Milo will be ready when Project Natal has matured enough to be released in the shops, though when that is remains a mystery.