From Ars Technica:

Thus Part I of this series will be devoted to exploring the types of applications for which the Xbox 360 was designed, with a particular emphasis on 3D gaming and the real-time procedural synthesis of in-game geometry.

Another piece of the puzzle seems to drop into place. I’ve only scanned the article, but this next part caught my eye since I was just wondering about this last night (while standing naked in SL and wondering when I’d have time to skin my av):

This patent (patent number 20050099417) that Microsoft was recently granted covers a method for using procedural synthesis to do real-time skinning of 3D characters.

Funny thought just entered my mind. Microsoft also has the patent for using skin to act as a “network” between computing devices. Imagine that you could marry the virtual reality skin with real skin in a kind of bio-synthetic/augmented reality hybrid. Have to give that some thought when I go back and read it more closely.