Kinect's two-player cap isn't a hardware limitation but an individual developer decision.
That's according to Microsoft's Xbox general manager Kudo Tsunoda who said in an interview at GamesCom that the Kinect hardware could handle more than two players at a time, it just wouldn't suit most of the games we've seen so far.
"I think that it all depends on the kind of experience that you want to build," said Tsunoda
"Certainly if you look at a game, go down on the floor, Dance Central is already incorporating a lot more than two players. So you know it's not necessarily any kind of limitation as much as it is developers just trying to customise the experiences around what they think is the best way to play."
"You can see like sometimes in a split-screen game it's hard to add more and more players because it's hard to see what's going on - and that's true of any game," he added.
"I think something like Dance Central you can see is already incorporating more than two."
We found Dance Central to be impressively responsive (if excruciating) during a recent playthrough.