A bit of juicy gossip for you today as SPOnG's US arm catches some sizzling information on the future of the already excellent Xbox Live Arcade service, currently the download darling of 360 owners around the world. Except in Japan, obviously.

Speaking to us in an "off the record so as not to get sacked" capacity, a Microsoft staffer explained how Xbox Live Arcade is going to swell to a monster of epic size. "XBLA has seen some pretty serious deal-making in this first quarter – it's been a real priority", it was explained to us by a source as close to the project as it's possible to get. "The deal-making has been a no-brainer for everyone we've spoken to and, aside from a few licensing issues with existing products, XBLA is going to smash Nintendo's Virtual Console to pieces. We're going for a major coin-op these[?], so the two offerings are different in that respect."

More? "You've heard of MAME right? Right. We're just doing a legal version of MAME, meaning that all the game owners get paid and the users get quality product based around a community. Imagine the biggest arcade in the world, just 1,000 times bigger. It'll have as many machines as we can possibly get, all with score-rankings and other community stuff. It's not a secret that MAME was massive for hackers of the original Xbox and the pull and sales of retro game packs on current machines is still really high. If this is taken and put under the right noses, it should become the biggest thing in mainstream/hardcore gamer crossover in the industry."

What's more, it looks as though Sega will be offering a major contribution, though frustratingly, we didn't get to the bottom of exactly what will be included in this major revision of Xbox Live Arcade. "Sega games will be included in a major way. It's a surprising addition to the deal and will include games that Nintendo will also be selling. The Nintendo deal is not exclusive."

The Sega involvement we find very interesting because as well as the readily-available 8 and 16-Bit games, the disc-based offers of the Mega CD, Saturn and - dare we hope - Dreamcast could well be rolled out should efficient porting software become available.

"The XBLA stuff [at Microsoft's E3 conference] is going to make up a major part of what they're going to show. The sheer quantity of games in the 'classic' bracket that are going to be shown and the vision of what XBLA will become should be one of the big news stories at this year's E3."

Expect more in the coming days as the E3 information dam hopefully springs a few holes.