The Kinect's innards used to contain a standalone processor. In January they said they ditched it and now we have a bit more information on why.
Before the removal of the processor, the Kinect used it for number crunching. Now, with the removal, the Xbox 360's processing does all the work. Kinect's main man at Microsoft, Kudo Tsunoda, explains:
"We didn't know how much processing Kinect was going to take at the start of development," Tsunoda told the new Xbox World 360.
"Obviously you don't want to lose any of the things that are important to Xbox customers. Graphic fidelity is something that Xbox has always been known for, and you want to make sure that you still hit that level."
So we're good. As an example he goes on to explain that Forza 3 is still running perfectly fine without the extra processor, and that's with Kinect control support: "It's still running at 60 FPS and it's supporting Kinect, so there's just no need to have that extra processor."
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