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]

Microsoft's J Allard told Reuters that gaming on a portable music player has been done before, but badly (undoubtedly pointing to iPod games), so it's a tricky proposition for them to do well—meaning they'll have to figure that out first before diving in. As for the Zune phone, they're focusing on getting the music and video part down first before tacking on other functionality. However, both are a possibility, because the new Zune OS is built on top of Windows CE, the underlying technology for Windows Mobile and Gizmondo. [Reuters]