That was a mouthful, well, once you get through the BS (get your waders, the hip-deep ones), you'll notice that they don't specifically mention how the add-on will deal with HDCP, only that it will "connect to the Xbox 360 console with a USB cable, enabling it to harness the power of the Xbox 360 console for the HD video outputs and digital surround sound.". Does that mean analog only, and facing the prospect of downconversion on ICT-flagged discs? We can't say for sure and we also can't tell you what it looks like because it hasn't been shown, hopefully we'll know more after their event tomorrow afternoon.
Check out Joystiq's live coverage for more E3 information.
[Thanks to all who sent this in]