2:42 pm - Koolaid blood spills from corpses, buildings demolished, apocalypse. The Gears of War trailer is the very first thing shown, and the applause is decent, but not deafening. CliffyB onstage now, giving us a playable demo of Gears of War. The game looks even better than our preview back in September at the Tokyo Game Show. It's come along nicely, with added HUD elements and a targeting system.

2:47 pm - Wiped out courtyard of enemiesenormous crab boss emerges from underground ... fades to black. Peter Moore takes the stage.



2:49 pm - Moore: "A taste of the second generation of next generation of games. We are delivering the next generation of gaming right here and right now. For the first time ever all of our gaming and entertainment resources are under a single division. Games are driving Microsoft entertainment." Moore dispels rumor that secret stach of consoles where hidden in Area 51.



2:51 pm - "By next month, we will have sold over 5 million Xbox 360 consoles. More than the original Xbox, the PS1, the PS2, or any other console at that stage in the lifecycle." The sales slide ain't half bad -- Tufte would be proud. The Xbox 360's sales curve is steeper than the competition and steeper than the iPod, a device many consider to be the gold standard of consumer electronics devices.



2:53 pm - "Xbox 360 isn't a hub, it's a gateway to new forms of HD content. Only Microsoft can deliver HD content, shared game space, and access to the digital entertainment of your choice ... connecting you console to Xbox Live, is as vital as connecting your compter to the Internet. By next year, Xbox Live will surpass 6 million members ... evolving into a true entertianment network. As of last week we hit 57% attach rate."



2:55 pm - A brief montage of Xbox Live Arcade games: Pac-Man, Contra, Galaga, Contra, Sonic, Defender, SF II Hyper Fighting, Time Pilot, Ultra Mortal Kombat 3, Scramble. Track and Field, Time Pilot, Contra, Super Contra, Paperboy, Rally-X, Frogger, too.



2:57 - Through Arcade we are doing what the Sundance Film Festival does for movies. As of today, we have partnerships with over 100 indie developers. Moore's sporting a lime-green pocket square, driving home one interesting aspect of the 360's differentiation: this is a console with an official color. Even if the box is white this time around (versus the original Xbox's black), the green remains. Whether that green signifies the money that's been poured into the box or the money consumers are spending on their electricity bills to keep the thing running, this color does speak to a branding sophistication that sets the console apart. Xbox  Live Arcade is about taking game play in new directions.



2:59 - Surprise addition to Xbox Live Arcade: Lumines Live. "Today I'm proud to announce a partnership with Warner Music Group to integrate [music] content into Lumines Live. " In other words, you'll be able to play music videos in the background as you play Lumines Live. The demo showed a Madonna vid playing in the background.



3:01 pm - Second-wave 360 titles: Lost Planet, Rockstar Games presents Table Tennis, Brothers in Arms Hell's Highway, Mass Effect, NHL 2k7 (2K Sports), Too Human, Viva Pinata, Moto GP, F.E.A.R., LoTR Battle for Middle Earth, Sonic the Hedgehog, Madden NFL 07, World Series Poker, Saint's Row, John Woo presents Stranglehold, Enchanted Arms, Test Drive Unlimited, NCAA Football 2007, Dead Rising, WWE Smackdown vs. Raw 2007, DDR Universe, Prey, NBA 2007, Crackdown, 99 Nights, Gears of War, Superman Returns.



3:02 pm - Moore: "By this holiday we'll have over 160 games to choose from. "Pro Evolution will make its next-gen debut on Xbox 360." Madden will debut on Xbox 360."



3:05 pm - Announcement: Fable 2, shows trailer. Ok -- as far as pre-rendered trailers go, the Fable 2 trailer looked hot. We'll see what it looks like once it's pressed on a disc.  Moore: "The next chapter of one of our bigest franchise. With Fable 2, Peter Molyneux will deliver a gaming experience more intimate than anything before it. " Moore welcomes Peter and Lionhead to Microsoft, audience applauds.



3:07 pm - Another MSFT Game Studios exclusive: Forza Motorsport 2. Moore: "Now you can choose from over 300 cars to tune and paint. You can play with up to 11 other people. Here's the best part, Forza will bae available by the end of this holiday season." The Forza tralier is so loud that the bass is vibrating the loose folds on my pants leg. This is by far the loudest demo that we've seen yet. Graphically, it looks good, but we've yet to see a racing game (from Microsoft or Sony or otherwise) that is leagues ahead of PGR3. In addition, Microsoft will make a wireless wheel controller available.



3:09 pm - Announces new wireless headset and  Xbox Live Vision Camera. These three new accessories will be available this fall.



3:11 pm - "We're committed to bring inspured content to  the Japanese market. And we have the help of Sakaguchi's exclusive title 1: Blue Dragon." Moore confirms the title will be available in Japan this fall.



3:13 pm - Announces Dead or Alive Xtreme 2. Later this week, you can download Itagaki's latest game trailer from the Marketplace. Moore: "Let's talk about the Tom Clancy series from Ubsoft. These games have consitently pushed the boundaires of Xbox Live. Let's take a look at the next installment." Previewing Splinter Cell Double Agent.



3:14 pm - So Moore's jumping from third-party developer to third-party developer, interspersing his patter with trailers of games. Ubisoft's trailer is a mix of cinematics and in-game play for Tom Clancy's Splinter Cell Double Agent.Splinter Cell Double Agent will be released this September on the Xbox 360.



3:15 pm - Moore: "Part of our commitment to broaden our entertainment. We're creating a whole new world that kids can jump into and enter anytime." Light chuckles ripple through the crowd when Moore says "Viva Pinata." After the gore of the Tom Clancy game, the transition is a tad jarring. All pinatas have candy-related names.



3:19 pm - Experienced players will have to deal with pesky pinatas. "The Romance Dance" ... how the pinatas reproduce. The Viva Pinata demo is a tad laggy and unfinished. We're seeing lots of polygon glitches and strange artifacting. We understand that it's unfinished, so we'll leave it at that. As many have noted, Viva Pinata appears to be very similar to Nintendo's Animal Crossing in concept. Moore doesn't miss a beat in reacting to the weak applause, "C'mon, it is an E-rated game, let's not forget here."



3:20 pm - Xbox Live Marketplace ihas opened the floodgates to truedigitally distributed content. There have been over 18 million content downloads. As of tonight, we will have over a 1000 conent items. Pre-orders for Fight Night increased by over 5 times after the Fight Night demo was released.

3:22 pm - "Tonight you can download HDTV content starting with Gears of War documentary, which will begin on Xbox Live and conclude net week on MTV." Peter Moore is talking about how Xbox Live changes the way that games are sold, distributed, and augmented through digital downloads and episodic content. We've heard it all before, but with each iteration fleshes out the vision just a little bit more.



3:25 pm - Moore: "The Xbox 360 HD DVD player. The intial run of Toshiba players sold out within a few days. I'd like to announce that today, the Xbox 360 player will be available this holiday. I've got to take my jacket off ... Some of you may remember this ... It's no big secret that I saved the big guns for the bog guns! Some guys do rubber ducks, so guys do tattoos. Moore takes off his jacket -- to show off his Halo 2 tattoo. The other arm has a Grand Theft Auto IV tattoo! October 16, 2007 in North America, October 19 in Europe.



3:26 pm - Microsoft and Rockstar games have entered into an exclusive partnership to provide exclusive episodic content through Xbox Live. Moore is interrupted by applause after this announcement. The crowd was not expecting this, and is pumped to hear it.



3:27 pm - Switching to Windows: "The most game friendly operating system in history: Windows Vista ... our new brand identity is Games for Windows." Flight Simulator X, Halo 2, Zoo Tycoon. Game demo featuring Crysis, exclusively for Windows. Chris Donahue, Group Manager, Games for Windows takes the stage. Chris is playing the game in god mode on some sort of super Windows computer that we can't see, but which we assume is the Dell XPS box right beneath his podium.



3:33 pm - Moore: "Let's take a peek into the future and see what gaming will look like on Windows Vista." Age of Conan : Hyborian Adventures; Crysis, MS Flight Simulator X. Moore: "Windows Vista is built to run games. It will be the single bigest launch int eh history og Microsoft. It will deliver more horsepower ... and for the first time ever your games will be immediately accessable form the Start menu."



3:35 pm - Oblivion sold 1.7 million copies in three weeks for Xbox 360 and PC. Shows joint release titles Shadowrun (Fasa Studio) for PC and Xbox 360. Microsoft's got an unenviable task of promoting both Xbox and PC games via the same conference. This isn't something that the other guys have to do. How do you show off the latest PC technology without making the Xbox 360 look stale? (Answer: thankfully, the PC and Xbox 360 aren't wildly different right now.) This allows the company to put together "joint releases" timed to hit the Xbox 360 and Windows at the same time. Whether "joint releases" are still happening four years from now is another question.



3:36 pm - Second joint release is Alan Wake (developer: Remedy) exclusively for Xbox 360 and Windows. Moore: "This game is  a true genre buster. It's a pyschological action thriller."



3:39 pm - The Alan Wake trailer looks good, and the audience applauds readily after it concludes. "When we come to E3 will always try to show something that's new ... " Introduces Bill Gates, who admits "I'm a heavy Xbox 360 user. A PGR3 addict ... The futre of gaming involves software, better tools, better environments, being user-centric." MSN Messenger will be connected to Live, so it's seamless. "Driving the industry to a whole new size."



3:40 pm - Share your gamertag, Bill. We want to add you to our friends list, yo. What is that in Bill's hands? He's holding a tiny white object and can't stop fiddling with it. Is a stack of index cards with Bill's speech notes? Bill's just stalling for time ... building suspense while we wonder when he's going to drop a news bomb on us.



3:42 pm - "Now with Xbox 360 we're ... driving a global phenomenon. Our biggest challenge was keeping [the Xbox 360] in stock. Today we're talking publicly about ... a 10 million unit head start with the Xbox 360. We got the pieces in place. A year from now, we will be at over 6 million on Xbox Live at the next E3."



3:45 pm - "So what's the most dramatic thing we could do to take Live to the next level? " Connect users. Consider that there are  230 miilion Windows gamers and 1 billion game ready cellphones." Announces Live Anywhere, will be built into the Windows Vista.



3:46 pm - Live Anywhere will provide cross-platform possibilities. Just scratiching the surface of mobile gaming. "Start a game on Xbox, continue it on your phone. There are games that will work that way."



3:48 pm - [Just quick note: Xbox 360 will launch in eight new countries: South Africa, Chile, India, Brazil,  Poland, Hungary, Czech Republic, and Slovakia. This is a big deal -- Microsoft's global operations allow it to reach into countries that are typically avoided. We regularly hear from Joystiq readers in South America who lament that getting current-gen consoles at realistic prices is difficult. Games in those countries are often twice the price they should be. When we spoke yesterday with Michael Pachter, Managing Director of Research for Wedbush Morgan Securities noted that the domestic-market growth will see "single-digit" percent growth, while overseas markets could see much higher growth. ]

3:49 pm - This Live Anywhere thing sounds nice, but we want to see these features in action. Gates is right that Microsoft is the only company that can pull this off (because of the ubiquity of the company's operating system), but it's also the only company that can fail to execute. Ooh, it's almost like Billy G's reading this blog post, because now they're going to show us some demos. Scott Henson Director of Platfrom Startegy takes the stage.

3:51 pm - Henson is starting game of Shadowrun on Xbox. He is automatically signed into Xbox Live; looks at friends list: can see friends on Xbox 360, mobile, and PC. "One gamertag no matter what the platform is ... of course I will be able to real time voice chat while we are playing cross-platform."



3:53 pm - Shadowrun demo: "Avenger" starts up Shadowrun and pulls up his friends list. He can see his friends connected to their mobile phones, computers, and so on. Avenger sends an invite to his friend "Major Nelson." Switch video feeds to Major Nelson. We see the invite pop up on Windows Vista, almost like an email notification popup. Major Nelson then compares profiles (insert slick, transparent UI here!) and decides to jump into Shadowrun with his buddy Avenger. Now get this: one of them's using the Xbox 360, one's using a Windows Vista PC. Finally, we will settle the ages-old debate about which control mechanism (mouse & keyboard or console controller) is superior for FPS control.



3:54 pm - Buy content once, available on all platofrms. Buy Zuma on Xbox 360 and have access to it on mobile phone -- one Marketplace. Gamercard integrated into mobile phone.

3:55 pm - New demo: From a Motorola cell phone, Avenger pulls up his friends list and notices that Major Nelson has sent him a message. In thise case, it's a car that's been sent from Major Nelson for use in Forza Motorsport. Avenger modifies the car with a Windows Vista application (applying an Xbox 360 logo to it). User-generated content for real -- but how will the company keep less clean content from showing up on the hoods of Forza Motorsport cars?  "Racing on Xbox 360, editing on Windows Vista, and tweaking on the mobile phone." Peter Moore re-enters.



3:57 pm - Summary from Moore: 10 million unit headstart, more than 160 games by this holiday, 6 million Xbox Live members by E3 2007, Live Anywhere unites all gamers. "I hope you've enjoyed this little glimpse into the future ." Gates and Moore exit, preview rolls ... Halo 3.



4:02 pm - The trailer is the same as the one currently on Xbox Live. Ends with "Finish the Flight -- 2007." The lights come on.

Over the speakers, some Halo 3 audio trailer continues. It's full of muddled voices, full of static, full of confusing references to Halo 3 plot elements that have not happened yet. There's Japanese, English, and Spanish mixed in. The background noise appears to have been recorded on a train platform. Hardcore Halo fanboys might be picking some clues up from this stuff, but we can't tell whether it's just a cute way to wrap things up or whether there's actually someone's embedded clues to kickstart the Halo 3 launch ARG (assuming there will be one).

Final thoughts:

1. Cross-platform integration is unprecedented but we'll see whether the bite matches Microsoft's bark.
2. Microsoft's playing a different game at this point: they've got the launch over with and now they're all about execution.
3. Microsoft has stepped up the competitive arms race and has taken a bit of a turn toward the extreme. The blood in the Gears of War demo flowed freely. The Crysis demo included the word "shit." Moore dissed rubber duckies when he showed off his tattoo.
4. Microsoft's projections are ambitious. Industry watchers suggest that the first console to 10 million installed wins the war -- so Microsoft's promise that they'll be there first is code for "we're going to win the long haul."

That was a lot of information for one press conference. Thank you for joining us, be sure to check out all of our E3 on-floor this week, including hands-on impressions of every game we can get our hands on!

Here's some Halo 3 screens for you: