According to those ever-shifty ANONYMOUS SOURCES, Microsoft is working on a system update that will quadruple Kinect’s accuracy, allowing it to detect hand rotation and even finger movement.
The rumored patch bumps up the camera’s resolution to 640×480 and allows for a higher amount of data to pass from the Kinect to the Xbox 360. Kinect’s USB controller interface can transmit 35MB of data, but currently only does 15/16MB. The limit is in place because Kinect supports multiple USB devices, but Microsoft is said to working on freeing that restricted data up.
This basically means that, through software alone, Kinect as a piece of hardware could improve dramatically. Just imagine a world where your on-rails Harry Potter could detect your little man-boner, and embrace the brave new world we inhabit.
Source: MS quadrupling Kinect accuracy [Eurogamer]