Who will come out on top? Well, they asked a bunch of celebrities to try Project Natal out at E3 but the cherry on their cake was the backing of one Steven Spielberg. "I think what Microsoft is doing is not about reinventing the wheel - it's about no wheel at all," Spielberg said at E3. "As a creator I could suddenly envision a new way of personalising game-play, making it possible to even change the paradigm of storytelling and social interaction." It's not as if the man needs the cash, so he obviously has great expectations for Natal.
Microsoft have the marketing advantage of Spielberg, but maybe Sony have the stronger product. Sony's director of Hardware Marketing, John Koller has already said he thinks Project Natal has some "depth issues on the Z axis" and claims "the Playstation Eye is more accurate and precise." There are even unsubstantiated rumours that Natal's sensor bar will have problems reading people with black skin (this is highly unlikely). Cue forum posts titled 'Microsoft are racist!"

Sony's motion-controller also seems more practical by using hand-held wands rather than Natal's reliance on full body movement. Natal's demos have so far taken place in large sterile white rooms - what happens to the movement sensors and speech recog when you factor in a tiny bedroom, a dog running around or kids talking in the background? In comparison, all you need for Sony's motion-controller is an Eyecamera, two wands and somewhere to stand.
Ultimately both products show real promise and they'll get their chance to go up against Nintendo's all-conquering Wii in 2010.
Resources:
http://news.bbc.co.uk/1/hi/technology/8080698.stm
http://www.youtube.com/watch?v=GH_gDreIdcM
http://games.venturebeat.com/2009/05/12/microsofts-gesture-based-game-control-to-debut-in-2010/
http://www.xbox.com/en-US/live/projectnatal/
http://www.youtube.com/watch?v=qiX-26VL4bM