This played at E3 2009 and was supposed to be for the Kinect (called Project Natal at the time). Peter Molyneaux promised A.I. interaction and voice recognition on a level we've never seen before.
Peter talks a lot in dreamy circles and promises you kingdoms and then doesn't do it. But to his credit there was actual gameplay snippets shown during a TED Talk the following year.
In an interview with Eurogamer after the press conference, Molyneux confirmed that the demonstration was of the previously-known "Dimitri," and would be a game developed around Kinect, titled Milo and Kate. In the game, players would interact with a 10-year-old child (Milo or Millie, selected at the start) and a dog named Kate, playing through a story. According to Molyneux, work on the Kinect-specific elements started in December 2008. The game would also feature an in-game store, for purchasing items to enhance gameplay.
The game still didn't take off. Microsoft did not want to back it anymore because they could not see it having potential as a full game. Milo was cancelled. Peter moved on to other Fable projects. Kinect would have its run and then die just like Milo.