Microsoft will reportedly launch Avatar Kinect next Wednesday, July 27.
The Avatar Kinect software uses Microsoft's motion sensor to recognise your facial expressions and represent them on screen through your avatar, allowing groups of users to sit around chatting in a number of themed virtual environments.
A mandatory Xbox 360 system update is being rolled out today. According to Microsoft, "there are no new features that will show up once your system has been updated. This update is preparation for additional system enhancements coming to Xbox 360 later this year."