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@Jazz2K

What we have in this story is someone claiming to have seen what amounts to a tech demo. Which he interpreted as being a representation of Microsoft's next home console. Beyond that there is not enough information to draw any conclusions either specifically, or vaguely for that matter. Other then Microsoft may have progressed far enough with the technology to have it work in real world settings. We can't even be sure that it was official field testing that he was seeing. For all we know it could just be a demo that someone that worked for Microsoft decided to share with their friend. Who just so happened to be a teacher.

If it was indeed a projector that flashed the room. We have no evidence as to what kind of projector it was, or what it was truly capable of doing. Beyond putting out a good amount of light for a short period of time. If he had even seen the Kinect unit that was being used. Then we might have something to go off of, but seeing as he did not even get that. We can only draw a couple conclusions if we believe his story.

Firstly Microsoft's is indeed moving forward with the projector concept, and secondly it is working in a real world environment. We basically get some confirmation that things are still proceeding, and probably proceeding quite well. Which to be honest was expected. Given how quickly Microsoft moved ahead with Kinect. We are at least a couple years into the development cycle of the concept. Microsoft had prototype handheld devices a year ago.

http://www.electronista.com/articles/11/11/01/microsoft.shows.three.new.prototype.ar.projectors/

Anyway even if I don't believe his interpretation. I do believe he saw something. He just didn't see much of real importance. I mean if he was conning us. He would have given us enough to hang ourselves with. like telling us what the hardware looked like, or given us a run down of features. While it is pretty damned hard to disprove, or to prove for that matter. Even if we did the latter we wouldn't get much. Unless we could actually get up close, and personal with the hardware.

As for your second point. I can totally see Microsoft incorporating some kind of projector. Even if it is just for the sake of having a intermediate gimmick. After all Nintendo didn't go full bore with motion control, and neither did Microsoft with Kinect. I think it is less a question of whether it will be there. Just what it will be able to do. There is just too much tech on display to be thinking that Microsoft isn't planning to incorporate it into some device, and the Next Xbox probably needs a new gimmick.