Do you read the terms of service agreements that come with software, hardware and firmware updates to your console (particularly Xbox), portable device or PC? No, you don’t. You’re always too happy to scroll on to the end and click “Yes.” One astute buyer took the time to read through the updated Xbox Live terms of service included with yesterday’s Xbox 360’s system update – and uncovered some pretty scary stuff.

Some time ago Microsoft’s Phil Spencer, assured you that Kinect wasn’t spying on you but it seems that might not be entirely factual. According to the terms of service, they can and will use Kinect to monitor players.

Sections 9 and 12 of the updated terms of service are particularly scary:

If you accept the agreement, you “expressly authorize and consent to us accessing or disclosing information about you, including the content of your communications, in order to: (a) comply with the law or respond to lawful requests or legal process; (b) protect the rights or property of Microsoft, our partners, or our customers, including the enforcement of our agreements or policies governing your use of the Service; or (c) act on a good faith belief that such access or disclosure is necessary to protect the personal safety of Microsoft employees, customers, or the public.”

Scary, eh? They reserve the right to monitor your voice and chat sessions using their new camera system. Microsoft also “reserves the right at all times to disclose any information as necessary to satisfy any applicable law, regulation, legal process or governmental request, or to edit, refuse to post or to remove any information or materials, in whole or in part, in Microsoft’s sole discretion.” Break the law in front of your Xbox 360’s Kinect system? You could be up against the law.

Thinking of disabling or bypassing any of these monitoring systems? Well, that’s illegal. Of course, the Terms of Service has always included sections that one might deem questionable. But now, it seems Big Brother really is watching you.