Developers only have a measly 16MB of RAM to work with, so don't expect to see anything currayzeee. But it's good to see the Zune and Xbox 360 finally swap some spit. This is just like the series finale of Friends!!

Potato Chase controls pretty smoothly with the Zune Pad. You push slightly on any edge and it moves you forward, backward, left or right. Click the middle, or any of the edges, and it fires a bomb toward your adversary. You can host a game, or join a game wirelessly with up to eight other players. While it is a primative demo, there was a minimal amount of slowdown while playing with two other people. There's also an API feature that uses album art to build the walls of the battle arena, however it wasn't functional on the demo units. Pretty cool stuff from the XNA team.

Microsoft isn't trying to compete against the Sony and Nintendo with the Zune games. The demo they showed us, a Galaga style arcade game, was closer to an iPod game or a highly polished cellphone game. Games requiring the Zune Pad on 2nd Gen Zunes won't be able to work on Zune 1, and Microsoft is still working out how to approach this discrepancy between the two models.

Also touched on was the possiblilty or API integration, where stored media on the Zune could be used in games, and wireless gaming, opening the possibility for internet or ad-hoc connectivity. While no commercial distribution model is in place, the early SDK will be available to anyone with a XNA Creators Club membership and created games can be shared amongst members. [Zune Games on Giz]

In addition, since the Zune has Wi-Fi, you can also do multiplayer games as well! You'll be able to multiplay from Windows to Xbox to Zune, which means that you might be able to develop one game for three platforms (with slight tweaks for each) that people can play with each other. Definitely cool. Check out Kotaku for more GDC coverage. [Kotaku and Kotaku]

It's definitely a work in progress, seeing as it only runs at 60% or 70% of full speed and has a lot of hardcoded stuff—like not being able to load ROMs.

We're confident that someone else will come along and clean up the project or even make one of their own. An SNES should be coming soon as well. – Jason Chen

Project Page [Google Code via Xbox Scene]

The subscription also allows gamers to play other people's creations, which is likely what most people will be using this for. From what we hear, it's pretty easy to use as well. If you just want to try it out, there's also a 4 month version for $49. – Jason Chen

Download Page [Microsoft]

Press Release [Microsoft]

Oh, and did we mention this is free? – Jason Chen

Download Page [Microsoft via Major Nelson via Crunchgear]