I was at the demo during the Microsoft Research Keynote speech at Microsoft PDC (Professional Developers Conference). And I got to talk to the Microsoft Research guy working on it afterwards.
This is not a game in the pipe to compete with LittleBigPlanet. What you don't see hear is that before this montage, they explain that this is a product of a person at Microsoft Research and his wife teaching their 9 year old kid how to program in C#. What they want to do is train programming as a life skill in the future just like finance, interpersonal, time management skills, etc. Boku is simply a tool that helps engrain the concepts of programming into a young person's head. It is not a game to compete with LBP.
The full presentation can be found here:
http://mschnlnine.vo.llnwd.net/d1/pdc08/WMV-HQ/KYN04.wmv
It is near the end. In the last 30-45 minutes if I remember right.













