The Buzz: A Microsoft staffer, wishing to remain anonymous, has revealed that MAME and games from SEGA are heading to Xbox Live Arcade.

Speaking to SPOnG, a Microsoft source close to the Xbox Live Arcade project has spilled the beans on what Microsoft has up its sleeve for the service.

"XBLA has seen some pretty serious deal-making in this first quarter - it's been a real priority," explained the source. "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."

So how is Xbox Live Arcade going to "smash Nintendo's Virtual Console to pieces"? Well it appears that Microsoft has plenty of ammunition in the shape of the massively popular emulator MAME.

"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," said the MS source. "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."

According to the source SEGA are also coming on board the Xbox Live Arcade battle ship.

"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."

What exactly SEGA will be bringing to the service is unknown, but as a minimum we would imagine plenty of titles from the 8-Bit and 16-Bit eras. Xbox Live Arcade is to be a major component of Microsoft's pre-E3 conference, and the anonymous source is confident that it will be one of the top news stories from the show.

"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."

SPOnG have had a bit of a hit and miss record with rumours in the past, so nothing should be taken as hard fact at this time. Answers should, however, be only a few weeks away.