Eurogamer: So what can Milo do?
Peter Molyneux: Milo can recognise the emotions on your face and the emotions in your voice. He can recognise certain words you say. You can have conversations with him, you can read stories to him. We're trying to bring all these things together. Some of them are tricks - I'll be absolutely honest with you - to make you believe Milo's real.
He can recognise what you're wearing. If he notices you've got dark bags under your eyes he will say, 'You look tired today.'
Eurogamer: Really?
Peter Molyneux: Absolutely, all of that works. We're combining all that together to make you really believe that he understands what you say.
Let's try an experiment. When a human voice says something funny, there's a different tone in the voice. Even though Milo's not trained to recognise your voice, if you say something funny to him, he should recognise it as something amusing. Try it now.
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Peter Molyneux: Now, he didn't really understand every word you said, but from the tone of your voice he guessed you were telling a joke.
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Peter Molyneux: You can buy stuff for Milo's world, like a bicycle or a trampoline. He'll come back from school one day and say, 'Oh, Alex' - Alex is this character at school who always does a bit better than Milo - 'Alex has got a new bike. When can we get a new bike?'
To get that bike you need to earn money by doing activities. There are three activities you can do, and the amount of time you spend on each activity sculpts your Milo in different ways - so everybody's Milo will be completely unique to them.
If you do lots of work, your Milo will be very studious. His hair will have a side parting. He'll be quite worried about his appearance and he won't like to get dirty. Whereas if you do more of the play stuff with Milo, he'll be more of a kid who goes out and scratches his knees.
Your character doesn't have to be a boy, it can be a girl. At the start you can choose whether to be play as Milly or Milo.
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Eurogamer: You said he only understands certain words. So presumably you can't have a conversation about the situation in Palestine?
Peter Molyneux: The number of words he understands is built up over time. For Claire [the lady who demoed a conversation with Milo during Microsoft's conference], it's something like 500 words.
But we haven't cracked the real problem, which is him understanding the meaning of it all. He'll give you the illusion he does that. The interesting thing is you can only talk to him when the Talk icon appears at the bottom of the screen. That's when he's listening to you; the rest of the time, he's not. He's listening to you because there's a context in which you can talk to him.
One of the journalists who came in before you had obviously read up on the Turing test. He asked Milo one of the questions in the test - 'Do you remember when we met yesterday?' Well, of course, we haven't cracked the Turing test. If we had, then applying it to a computer game would be the last of the solutions we'd use it for.