Fast Company recent spoke with Microsoft exec Shane Kim about Natal and the future of the Xbox 360. Kim said they're very interested in continuing to build out support for social networking and digital distribution, and he also made some interesting remarks about their long term plans
"It really has much more to do with ... the innovation and longevity that will be created when Project Natal is added to that mix and the value and the entertainment options that we continue to expand on Xbox Live. The 'next generation' will be defined by software and services, not hardware. In the past we would always get this question: 'Hey, there's a new console launch every five years and you're coming up on that time for Xbox, right?' That's the old treadmill way of thinking. Before you had things that were very obvious, from a hardware standpoint — pushing more pixels, the move from 2-D to 3-D, 3-D to HD, etc. We got a very powerful piece of hardware in Xbox 360. I am confident that we have more headroom available, in terms of developers and creators figuring out how to get more out of the system. So I worry less about new hardware having to enable us to move to a different level of graphics. It's much more about the experiences that you are going to deliver."