During his keynote on the eve of the Consumer Electronics Show, Steve Ballmer made clear that Microsoft Corp. aims to own home networking and loom large on the connected lifestyle front. And the Microsoft CEO talked about how the company’s Xbox, Windows Phone 7 and Windows 7 solutions position it to do just that. He also used CES (News - Alert) as a forum to introduce some exciting new capabilities and products from Microsoft and some of its partners.

The Xbox launched a decade ago. That was followed by Xbox Live, which brought the cloud and social entertainment into the mix. Xbox LIVE now boasts 30 million members. Recently Microsoft introduced KINECT for Xbox 360, a product that allows gaming without the need for a remote control and which “opens the experience to the whole family,” he said. Ballmer noted that 8 million KINECT sensors have been sold.

On Wednesday night at CES, Ballmer revealed that this year Microsoft will go on to bring KINECT capabilities to Netflix and Hulu (News - Alert) on Xbox LIVE. That means users will be able to access and control that content by waving their hands and arms. Microsoft also demonstrated how the Zune store, which offers movies and music, also enables customers to order and manipulate their context without a controller, via body movement and/or voice commands.

Ballmer went on to reveal a new KINECT capability called avatarKINECT that presents an on-screen version of an individual and tracks the facial movements of that person so the avatar smiles, raises its eyebrows and makes other facial moves as the person does so. (Think Mii, but with facial expressions.) This spring avatarKINECT will be free for all Xbox LIVE gold members, he said.

Considering that the Xbox has evolved from a gaming platform to a device that can be used to access other content like movies and enable social networking, it is “becoming the hub of your living room,” he concluded.

Ballmer and other Microsoft presenters went on to talk about how the Windows 7 Phone (News - Alert), in addition to the great interface and usability features it offers, also now allows customers to enjoy Xbox LIVE on the go. He added that an update to Windows 7 Phone, which launched just two months ago, will be coming in the next few months and will include copy and paste functionality, offer performance improvements, and will be supported on Sprint and Verizon (News - Alert) networks.

While tablets are expected to loom large at CES this year, in the Microsoft presentation the discussion about tablets, and even PCs, was more of a footnote. But Ballmer did wrap up his discussion by talking about how the next version of Windows will support SoC technology from AMD, ARM and Intel (News - Alert); the fact that Windows 7 is used in a wide variety of tablets and other form factors today (and he showed some super-cool laptops from a variety of partners); and the company’s high expectations for a new, lower priced, version of Microsoft Surface, which can work not only as a table by also in other form factors. The company said Royal Bank of Canada is currently using Microsoft Surface to allow customers to hold up flyers to screens using the technology, and the screens read the flyers and lets those customers know whether they have won anything and can offer other information.

But, in the end, Ballmer’s message was about the great success Microsoft has had in the past year with its various new launches and how the software giant is not only here to stay, but is expanding to touch every aspect of communications.

“Whatever device you use – now or in the future – Windows will be there,” he said.