Kinect Party - Double Fine's sequel to Happy Action Theater - is due out on 18th December where it will remain free for the remainder of the year. After that it will increase to an unannounced price.
The sequel will contain 36 alternate reality backdrops and scenarios for people to interact with. These include dubstep parties, a fairy-themed fantasy forest, and a giant bathtub, among others. It will also have Facebook support so you can capture images of your tomfoolery for all your friends to see.
I managed to try the game out at PAX Prime, where it transformed me into a fairy princess and ninja turtle.