After announcing the 2.0 version of XNA Game Studio during Gamefest's keynote, XNA general manager Chris Satchell also revealed that the company had made an "unprecedented" move to allow consumers direct, legal access to game content from a number of Microsoft-owned IPs.
Effectively immediately, Microsoft has granted consumers "a personal, non-exclusive, non-transferable licence to use and display Game Content and to create derivative works based upon Game Content, strictly for noncommercial and personal use".
The licence, similar to the Creative Commons agreement that some writers and artists use to give their works free and open copyright to the public, gives users access to any game published by Microsoft Game Studios (but not any third-party brands). Users don't get rights to share the games themselves, but can share creations that use game content.
That means materials from Age of Empires, Forza Motorsport, Halo, Project Gotham Racing, Viva Piñata and any other MGS game can be freely and legally 'remixed' by players.
There are some clauses: the rights don't extend to music or sound effects, assets can't be used for racist, obscene or pornographic ends, and players can't claim to be adding 'lost chapters' to Microsoft IP, plus they have to add clear '©' and related disclaimers to their resultant creations. They also can't reverse-engineer the games, either.
However consumers may now use gameplay footage, screen shots and other gameplay elements to, says Microsoft "express their own imagination and creativity".
While the only specific kind of work Microsoft made direct reference to was machinima, as the news was delivered as part of a development conference keynote, it doesn't seem too much of a leap to presume that Microsoft intends for the licence to mean use of the content in free, non-profit games made using the XNA framework is allowed.
More details can be found at Microsoft's official 'rule' list for the agreement.