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This sounds really cool, but don’t expect your Zune to have games right away. What this announcement is saying is that this Game Studio will no be able to develop games for the Zune. More details later, but it does open the door for some exciting ideas for the future for Zune.

Here’s an important point of clarification: The announcements at GDC are about the new XNA Game Studio tools, which will support game development on Zune in the future. These added XNA capabilities are the first step toward offering developers the opportunity to design games that could be played on Zune devices, but Zune is a wireless music and video player first and foremost. – Cesar (Zuneinsider)

In addition, Engadget has grabbed some photos from their demo at this conference…