Some confusion in the Microsoft Xbox PR camp this week with conflicting reports about Peter Molyneux's impressive-looking Milo and Kate for Kinect.

Microsoft's PR chief Aaron Greenberg initially suggested that Molyneux's title was just a 'tech demo' used at E3 2009 to introduce and demonstrate the potential of Kinect (which, back then, was still referred to under its code name 'Project Natal').

However, Lionhead boss (and Creative Director of Microsoft Game Studios) Molyneux has been quick to scupper those initial reports, telling attendees at this week's GameHorizon event in Newcastle that Milo & Kate is still on the way from the studio.

"All that technology that we showed at E3 last year actually does work," said Molyneux.

Difficult to describe

"Milo has been a really hard thing to do and a really hard thing to describe," he continued. "I have real sympathy for the [Microsoft] people over in Redmond, because they understandably have some questions.

"Poor Aaron Greenberg – he's on the PR team, he hasn't seen it since last year, so he came up with this stock answer that Milo is alive and well and living in Guildford but it's still a tech demo," added Molyneux.

"I feel sorry for him, he hasn't seen the game since last year. If I had spent time with him and showed him the game recently, he'd know what was going on."

Molyneux is set to show off the latest developments in Milo and Kate at TED Global in Oxford next month.

He was also keen to show off the latest developments with Fable III at Gamehorizon this week, revealing that the game will be released as a full retail boxed version AND as an episodic download version, whereby gamers can choose to play a free one-to-two hour demo and then purchase the game chapter-by-chapter.

"Soon after the retail launch we're doing episodic," Molyneux revealed. "We break it down in chapters. We give away the first chapter entirely free, the first hour.

"When you reach a certain point in the game it says 'thank you for playing the pilot of Fable 3, do you want to spend an extra 2-5 or whatever dollars to buy the next episode, or buy the whole lot?' Press 'yes' and you will immediately continue playing."

Molyneux expects Fable III to sell 5 million units, generating a cool $150 million in revenue.

Fable III releases in October for Xbox 360 and as a download for PC.

Via GamesIndustry.biz