Microsoft have been previewing an new Xbox LIVE upgrade which gives users the ability to test out some of the new features coming soon to the Xbox. These include Facebook, Last.fm, Twitter and 1080p streaming. Early reports indicate that the Limelight delivered HD streams are outstanding.

Dan Rayburn mentioned that “After downloading a Zune video app, you can browse through movies available in 1080p and new to the movie service, you can choose to stream or download the movies. If you select streaming, the Zune app does a quick check of your connection to tell you if you can get the 1080p content and once you purchase the movie, the buffer time before it starts is less than a second. When Microsoft says that the new Zune video technology allows for “instant-on” streaming, they aren’t kidding.”

Microsoft has recommend a minimum of 4 Mbps for the full 1080p/5.1 experience but the great thing about the technology is that videos will automatically scale to the best possible resolution based on the speed of the users internet connection.

The Zune Video on Xbox LIVE takes advantage of Microsoft’s Smooth Streaming technology, which is a feature of IIS Media Services. The Zune Video was built from the ground-up for the Xbox 360 platform. While the Silverlight plug-in also takes advantage of Smooth Streaming technology, Silverlight is not being used on the Xbox platform.

Microsoft says that Zune video on Xbox LIVE features a state-of-the-art encoder and high performance decoder that allows them to offer instant on 1080p video and 5.1 surround sound with Smooth Streaming playback and smooth fast-forward and rewind functionality. They aren’t giving out any details yet on how the videos are encoded and what the settings are, but I expect we’ll hear more about that when the service launches to the public. Microsoft also said that they recommend a minimum of 4 Mbps for the full 1080p/5.1 experience but the great thing about the technology is that videos will automatically scale to the best possible resolution based on the speed of the users internet connection.