The immense financial success of the Kinect wasn’t the only thing that Microsoft had to announce at this year’s CES conference—they also had some fun Kinect gadgetry to entertain the audience with. Namely, I’m talking about Avatar Kinect. Steve Ballmer went up on stage to show this new feature off by giving us a hilariously silly view of his mug in Xbox avatar form.

(Isn’t he cute? …and bald.)

The underlying innovation behind Avatar Kinect that really catches my attention is the fact that the camera and software are so precise that it’s got a pretty good recognition for facial movement. This means that while you’re chatting with someone voice over Xbox LIVE the Kinect can also translate smiles, frowns, raised eyebrows, winks, and the like onto your avatar. In fact, imagine Second Life using this sort of technology—it adds a whole new social dimension to interacting with an avatar.

The Escapist Magazine has their own preview of the product:

Dubbed a “new way to socialize on Xbox Live,” Avatar Kinect is a group chat system that uses Kinect to detect a user’s body movements and translates them onto their Xbox Live avatar. It has a surprising level of accuracy at reading facial movements while talking, smiling, raising eyebrows, or laughing.

Avatar Kinect features many different backgrounds, such as a tailgating party, a “gothy” forest, and space. Why become an astronaut when you can just chat in space through Kinect?

Being a goth myself, I really enjoyed the background that’s the “gothy” forest (although it looks more like a Tim Burton wasteland to me). But, I keep imaging how this might tie into things like the Xbox LIVE trivia game, which would be showing actual body reactions on the avatars instead of cycling animations.

In fact, the video itself (see below) portays another innovation that I really want to see come out of Kinect: the ability for people to set up and record their own virtual talk-shows and gatherings. In fact, people have been doing this on YouTUBE with machinima talk shows for quite some time like “This Spartan Life” which used Microsoft’s Halo as a backdrop for an interview show. With animators, programmers, and homebrew hackers going so many places with the Kinect, this sort of addition to Xbox LIVE enables these sorts of social forums for the everyday user.

So, if you make yourself a talk show with your friends with Avatar Kinect and you really like it. Please feel free to come by and drop a link to it in the comments. We’d love to see what you’re up to.