Microsoft's Kinect device has already done a serviceable job connecting kids with their favorite characters.  Just look at the success of Once Upon a Monster from Tim Schafer and his team at Double Fine Productions.  But it looks like that's just the beginning of the team-up between Microsoft and Sesame Street, as the company introduced a whole new level of interactive programming for kids last night during its CES keynote.

LAS VEGAS – Microsoft executive Steve Ballmer did talk about games during his final keynote of the Consumer Electronics Show. The Xbox 360 has sold over 66 million pieces of hardware since it first launched in 2006, including 10 million in Q4 2011. Microsoft’s motion-sensor Kinect device has continued to sell well with an installed base of 18 million gamers. And Microsoft now has a robust community of over 40 million Xbox Live users.

LAS VEGAS - At AT&T's Developer Summit being held here in Las Vegas ahead of the opening of CES 2012, Microsoft CEO Steve Ballmer made a surprise appearance to help launch some new Windows Phones from HTC and Nokia. As he often does, Ballmer ran on stage with an excited scream as he was introduced by AT&T's CES Ralph de la Vega on stage.

Microsoft Studios is using CES 2012 to premiere its first flight simulator game in years. Although the physical location is in Las Vegas for the annual trade show, the new game is set in Hawaii. Microsoft Flight, a PC game that lets players jump into the challenge, fun, and freedom of flight, will be available as a free download this spring, giving players the freedom to fly the skies over the beautiful Big Island of Hawaii, complete a variety of exciting missions, test their skills in flying challenges, or find hidden aerocaches on the island.

As you saw from a report that we posted this weekend, Microsoft had big problems with its UFC on Xbox Live app.  Despite allowing select users to watch the fight for free, there were a number of technical errors that marred the experience, mainly the lack of a solid video feed and the inability to watch an offered replay.  But Microsoft is aware of said problems, and is promising to make the matter right for subscribers.

In a sign that CES continues to grow despite the struggling global economic situation, 94 companies will exhibit in the new Eureka Park TechZone at the 2012 International CES. The dedicated area was created partnership with the National Science Foundation, Startup America Partnership, CNet and UK Trade & Investment (UKTI), showcasing innovative start-ups and entrepreneurs. Owned and produced by the Consumer Electronics Association (CEA), the 2012 International CES, the world’s largest tradeshow for consumer technology, is scheduled January 10-13, 2012 in Las Vegas, Nevada.