@ Bolded:  Actually this is incorrect.  MS has just spent 1 billion dollars just last year on a new datacenter in virgina which they stated will be used for XBL and their other services.  MS spent a billion on their Orleans platform which will be used for their cloud based processing.  MS has stated they will dedicate 300,00 servers to bring cloud based processing to the X1.  If that is not MS stating their investment to their cloud services, I am not sure exactly what you are looking for.

Not sure what Kinect/Natal has anything to do with Azure and MS cloud based services.  The first Kinect was more hampered by cost to bring to market not development of the device as MS cut a few features in order to sell the device at a mass market price.  Anyway thats neither here or there and revelant to the discussion

I stated that I believe the new Halo will be the game that leverage cloud processing.  Most companies market first then deliver later as they want to get buzz around their product before bringing it to market.  This is done all the time.

Not sure where you have been but Sony is a prime company that market something which could take years before it make it to market.

I will eagerly await the day Halo launches to see exactly how much their billion dollar technology will improve games for us.

bookmark this and come back on halo's release?

then you can tell me the next game that will prove the clouds power.

I suggest that you keep an open mind.  While it definitely appears you have your doubts, I do not.  I work in this space so I know how much cloud services can enhance local systems.  My company run entire businesses on our cloud services where people can use tablets and smart Phones to do their work that use to take a desktop or high-end laptop to do.   

The problem with most gamers is that they narrow  their  vision to just graphics but there are many things a game does that can be processed and streamed from the cloud thus releasing local resources to other things.  The tech has already been demonstrated so its only a matter of time before we see more games take advantage of the resource.  This will be more apparent as developers start to work within this space for video games. 

The difference is that for a business, latency wont matter. For gamers, it will. And thats where my doubts are.

First the console has to make a request to the cloud, the cloud processes relevant information and sends it back to the console which then integrates this data with the other data being processed on the hardware before finally converting it into something meaningful for the gamer.

Maybe thats ok for something like processing unique crown animations in sports games, but things which users can interact with like AI or dynamic lighting, I dont think it will be able to keep up, especially for gamers that dont live close to where the cloud servers are located, and obviously those who dont have internet or dont want to pay for XBL (the minority but still in the millions nevertheless).

Not sure if you have ever created business class cloud solutions but latency and bandwidth is always a concern.  I have people counting the number of clicks it takes to do things within applications I create or how long it takes to process a call.  These are things you are always tweaking for performance when you create appliations for customers.

You are thinking about the solution wrong.  The developer knows where you are at, what you are doing and where you are going at all times within their game.  A lot of stuff can be sent to the cloud before the gamer ever gets to a specific location, perform a specific action.  That info can be sent to the Cloud to be process and streamed back to the user in advance.  Depending on how the developer create their environment and host an instance of their software in the cloud, a lot of complex calucations can be performed which do not require a lot of data streamed to the local machine.  Hell, this is not something new.  You can take the predictive Google search as an example.

 Also another way to take care of latency is to have your game synced with the cloud server.  Both are running an instance of the game or pieces of it, where the cloud service can stream just that bit of info back to the local client.

As an example, think of a game like the latest Assasin Creed.  When you are on the island and walking through a jungle.  All of the environmental effects can be offloaded to the cloud.  Wind, Sand blowing, fog, you name it.  Local things that the user interact with can be done client side. 

One of the advantages that MS have within this space is that They have local servers all over the world.  Its one of the areas MS has been spending billions on their network.  The chance that you are close to a datacenter that can cloud compute your game is actually pretty good judging by how Azure works today.

I believe why most people do not believe the cloud can make a difference is because they do not have a background in the cloud or even in development. There is a lot to developing a game and there are multiple ways to tackle using Cloud compute.  I am sure by this time next year we will see multiple different solutions.

You are thinking about the solution wrong.  The developer knows where you are at, what you are doing and where you are going at all times within their game.  A lot of stuff can be sent to the cloud before the gamer ever gets to a specific location, perform a specific action.  That info can be sent to the Cloud to be process and streamed back to the user in advance.  Depending on how the developer create their environment and host an instance of their software in the cloud, a lot of complex calucations can be performed which do not require a lot of data streamed to the local machine.  Hell, this is not something new.  You can take the predictive Google search as an example.

 Also another way to take care of latency is to have your game synced with the cloud server.  Both are running an instance of the game or pieces of it, where the cloud service can stream just that bit of info back to the local client.

As an example, think of a game like the latest Assasin Creed.  When you are on the island and walking through a jungle.  All of the environmental effects can be offloaded to the cloud.  Wind, Sand blowing, fog, you name it.  Local things that the user interact with can be done client side.