The update is said to not be very big and will come down to your Xbox upon connection to Xbox Live. After download the update will require a reboot. It could be that the update is to prepare to make way for Avatar Kinect which our source claims will arrive July 27th, which seems to be in sync with what other sources are claiming.
Avatar Kinect (which is expected to be added to the Kinect Fun Labs) is a collection of chat tools for a lack of a better way of describing them. These tools will seamlessly integrate with Xbox Live chat and party chat functionality to animate a user’s avatar as well as allow users to make and upload video starting their avatar.
Speculation that the update is to prepare for Avatar Kinect is pure speculation without confirmation from Microsoft, but if Avatar Kinect is planned for release on July 27th, the time does seem to fit; and with the integration necessary to hook into Xbox Live chat and party chat, it does seem reasonable that this is what the update is for. We will have to wait and see if this is the case.
We don’t seem to be the only ones with this thought. Read more here.