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The Kotaku article has been updated with a statement from a Micosoft spokesperson confirming that gesture control for the dashboard does not work while seated as of this time:

UPDATE: A Microsoft spokesperson told me after the publication of this article that the company is certain that Kinect gesture control will work for movies, ESPN and other "entertainment" features before the sensor is launched. As I originally reported, that is not an implemented feature yet. The spokesperson was not able to provide any update on the Kinect's tolerance of a person who sits while playing games.