I can now confirm the existence of the Xbox Wiimote clone project and I can tell you the project code name: "Newton"
The hardware is still being worked on and it might be a couple months before we see leaked shots of prototypes when they start to mass manufacture it but I am sure that there is an early software developer kit and prototype out there.
Microsoft is rumored to have licensed patents from Gyration and are using them to develop their motion sensing Wiimote controller. Legally Microsoft is not ripping off Nintendo but rather licensing the technology from the same place that Nintendo got it. For an example the Guitar Hero and Rockband controllers both use the same patent that is owned by Konami that they developed for Guitar Freaks.
From what I've learned from internal sources at Microsoft I can collaborate that the Newton project is moving forward and I can believe the time table that it has been in development for a while now and they could get it on the market by winter of 2008. The Newton is also going to use an LED sensor bar that can be powered by the USB ports on the 360, it is going to have an LED sensor on the front accelerometer and gyroscope sensor that can detect tilt and motion, rumble motors, wireless two way data communication with the 360, a built in Microphone for Xbox Live and voice-activated games.
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