Everyone already has a smartphone, laptop, tablet, etc. All of those devices have cameras and microphones. Most of them can track your location to within a few feet. They have your email, your web history, your bank accounts and passwords. And people are worried about the KINECT? Please. The hardware to watch, listen and track you is already in your house. You're already trusting the companies not to be (too) evil, and trusting the software to protect your privacy. What's one more device?
I agree with you here. Privacy has always been a pretty big issue with electronics. But you can see what's around us. iPhone apps have been made specifically to track people. And millions of people willingly download them. Either people don't understand or trust them to not use this information maliciously. So compared to the developers of these small apps, MS has even more of a reason to protect a customers privacy. They're a huge company that would seriously be up shits creek if any malicious activity was found being performed. And believe me, people will be monitoring for this. I seriously think we have far less to worry about with a powerhouse like MS.
CS/CpE. Yay engineering!