Do you ever read the terms of service agreements that come with software, hardware and firmware updates? I know I don’t. I’m all too happy to scroll on to the end and click “yes.” One astute reader, liberty, took the time to read through the updated Xbox Live terms of service included with yesterday’s Xbox system update – and uncovered some pretty scary stuff.

Remember how we, via Microsoft’s Phil Spencer, assured you that Kinect wasn’t spying on you? It seems that might not be entirely factual; According to the terms of service, they can – and will use Kinect to monitor players.

 Sections 9 and 12 of the updated terms of service are particularly scary :

If you accept the agreement, you “expressly authorize and consent to us accessing or disclosing information about you, including the content of your communications, in order to: (a) comply with the law or respond to lawful requests or legal process; (b) protect the rights or property of Microsoft, our partners, or our customers, including the enforcement of our agreements or policies governing your use of the Service; or act on a good faith belief that such access or disclosure is necessary to protect the personal safety of Microsoft employees, customers, or the public.”

Also scary? they reserve the right to monitor your voice and chat sessions using their new camera system. Personal privacy? Not so personal, not so private.

“You should not expect any level of privacy concerning your use of the live communication features (for example, voice chat, video and communications in live-hosted gameplay sessions) offered through the Service.” They obviously won’t – and can’t – monitor every single system at the same time, but they say that they have the right to do so “to the maximum extent permitted by law.”

Microsoft also “reserves the right at all times to disclose any information as necessary to satisfy any applicable law, regulation, legal process or governmental request, or to edit, refuse to post or to remove any information or materials, in whole or in part, in Microsoft’s sole discretion.” Break the law in front of your Kinect system? You could be up against the law.

Thinking of disabling or bypassing any of these monitoring systems? Well, that’s illegal. Of course,the TOS has always included sections that one might deem questionable if they favoured privacy – but with the inclusion of camera, it’s edging ever closer to an Orwellian level of surveillance. It seems Big Brother really is watching you.

Read over the new terms of service here : Xbox.com