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Pyro as Bill said:

It's not just Your Shape.

On Dance Central during the chickendance, the screen shows the geeky dude's avatar and 2 backing dancers but then the real life backing dancers jump in. Why? It makes no difference to the onscreen action. So is it multiplayer or were MS giving the impression that it was?

Lots of smoke and mirrors.

I think it was just part of the show. In any case, it shows that Kinect can handle people jumping in and joining all of a sudden without screwing anything up.