Microsoft's booth had four systems with Phantasy Star Online linked together, with full voice headset, and the experience was fluid. The game plays like other incarnations on both Dreamcast and Gamecube (well, you'll find out eventually) and the transition between menus and selecting items in combat is phenomenal. The demo consisted of fighting several enemies in a small arena and then fighting a dragon in a much larger open area. The graphical quality was extremely nice.
The voice communication in this type of RPG is perfect. Instant communication between the characters in the party is so useful that it is hard to believe we've been living without it for so long. One of the Microsoft represenatives was both playing with me and teaching me how to get to certain controls quickly. Before a few minutes were up, I was strafing around, fighting the dragon, and healing myself without missing a beat.
Right now, it is not known how much of the content is from Episode 1, Episode 2, or original to the Xbox version, but we are sure to find out soon. If you have an Xbox, you must get Xbox live, and you MUST get this game when it comes out this fall.