It seems like just a couple months ago that Peter Molyneux was on stage at the prestiguous TED conference sharing "Project Milo" with the attendees, and now rumors suggest the virtual boy-shaped tamagotchi has been put down and carved up. We spoke with Microsoft Game Studios boss Phil Spencer in Tokyo last week and asked him about the commercial prospects of the always commercially vague Milo project.

"If I had to bet, which I guess I do, I think you will see the innovation that that team put forward come to market, absolutely," Spencer told Joystiq. "Will it be under the idea and framework of 'Milo,' I'm not as convinced of that."

Spencer said the Milo project was what he called "off-the-grid incubation," wherein a small group would splinter off to work on new ideas. "It's always one of the fears when some of the names become a little more public," Spencer admitted, "because then it's, 'What happened to that?'" In the case of Milo, the project wasn't leaked to the press; instead, it was put on stage at E3 as a vision of what's possible with Kinect."

Did parts of Fable show up in Milo? Absolutely. Will parts of Milo show up in future Fables? I absolutely expect that they will.- MGS' Phil Spencer

"We felt like we wanted to put it on stage at E3 because it showed a unique use of Kinect," Spencer said. "We never talked about it as a retail game or as a game even. We did that deliberately. People don't believe us, or didn't believe us then, but we did that deliberately because we knew, 'Is this really going to come out as something called Milo? I don't know.'" He did add that, while they may have been skeptical of Milo's commercial potential early on, they were always confident that "the learning there will show up in projects" coming from Microsoft Game Studios. But what projects?

A Eurogamer report claimed that the Milo tech would be applied to a "Fable themed Kinect game." Spencer told us, "In the end, if it makes Fable better, that's a win for us. That's great. Did parts of Fable show up in Milo? Absolutely. Will parts of Milo show up in future Fables? I absolutely expect that they will, and that's the kind of circular path that most of the creative teams go through." We're certain we'll see parts of Milo in future Fables; now, the question is whether or not those future Fables include next month's Fable 3.

The actual truth of the story is, we did experiment with a few prototypes for Fable. They were okay.- Peter Molyneux

With none of the proposed Fable 3 Kinect support visible just weeks before launch, it's certainly possible that Lionhead has shifted its strategy to something standalone. "The actual truth of the story is, we did experiment with a few prototypes for Fable. They were okay," Molyneux told us in Tokyo. "If we're going to do Fable and we're going to do Kinect, and we love Fable and we love Kinect, it would be great if there was something I could show you that would blow your socks off and that would be great to do. That is so much more appropriate than doing some minigame." He continued, "It would be better to think of Kinect as being a proper part of the game."

To that end, even with the rumored 19 contractor layoffs, the majority of the 50-person Project Milo team is still hard at work at Lionhead. "The [Milo] team at Lionhead, under Gary Carr working for Peter, they're still there, yes [...] and they're working on technology. But I want to make sure what we're delivering a very understandable consumer proposition with what we're putting forward."

And the circle continues. Spencer said that Project Dimitri -- one of the publicly known "off-the-grid incubation" projects that we now know as Project Milo -- began life "before Fable 2," so it's anyone's guess where and when we'll see it turn up next.

This article was originally published on Joystiq.

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