Wow, their PR guys did a number on you. Not only did they not encourage it, they threatened lawsuits!

"Microsoft does not condone the modification of its products," a company spokesperson told CNET. "With Kinect, Microsoft built in numerous hardware and software safeguards designed to reduce the chances of product tampering. Microsoft will continue to make advances in these types of safeguards and work closely with law enforcement and product safety groups to keep Kinect tamper-resistant." [1]

It was only after several days, when it became clear that they couldn't do anything to stop people, that they decided they wouldn't bother about it.

[1] http://news.ycombinator.com/item?id=1874118

I know they were hesitant at the very beginning but quickly changed their minds...guess I was wrong.

Yeah I laughed at a conference when a Microsoft exec brought it up as a strong point that the Kinect has developed an ecosystem of hacking for interesting alternate uses.

I don't recall them to being too thrilled with people messing with their device at the beginning; it seemed that they embraced it after the fact to seem supportive of the community unlike other corporations.