Sparrow, that 12-year-old we mentioned, apparently did create a "pretty impressive" game using Kodu, described by Engadget as, "Katamari meets light-cycles from Tron. It's totally bizarre -- now her and Robbie [Bach] are using cycles to steal rocks from each other." Actually, sounds brilliant to us.
Kodu was originally designed as a learning tool for kids, but Microsoft promises it's compatible with people ages "seven to 70." Players reportedly create their game worlds in mere minutes using a pool of 200 building blocks designed to drive simple gameplay concepts like vision, hearing and time. Kodu is scheduled for release this spring and has yet to be priced.
Update: Video after the break, and more details here. [Thanks EvilDud!]