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I thought they had already patented this before, but when looking around I found this
http://www.lazygamer.net/xbox-360/has-microsoft-stolen-illumiroom/

US2007247518 patent from 2007

To supplement a video display on a conventional television, a surround video stream is projected onto wall and other surfaces adjacent the television. The surround video stream may derive from a wide angle lens camera positioned alongside the main camera. The surround video stream may be processed in a local processor to compensate for departures from planar geometry in the wall surfaces. Where no surround video stream is received, a video processor may synthesize a surround video stream from the main video signal. Moving objects represented in the main video signal may be synthesized in the surround video to provide the perception of movement across the viewer's full field of view.

I guess automating the compensation process with Kinect is what MS is patenting?