To make a long story short, the handsome Prince George was shipwrecked on a desert island, survived on bread dropped by compassionate seagulls, and was rescued by a camel swimming by. At least, that's what I think happened. . . .

I'm sitting on the floor with Zeb, who's 5, and Aimee Elisabeth, 7. They've been spinning this yarn of Prince George for the last half hour. They began with crayons, then, like a mini film crew, digitized their pictures, sounds, and words into a movie. Yet there isn't a single computer screen, keyboard, or mouse in the room.

We're in Eindhoven, the Netherlands, at the design headquarters of Dutch electronics giant Philips. And we're playing with Pogo, a jumble of tools to encourage 4-to-8-year-olds in the art of storytelling. At first glance, the room resembles the front cover of a Fisher-Price catalog--but hidden in the silver dance mat, red tables, and assorted round-edged toys is a little arsenal of microphones, cameras, projectors, and VCRs.

"The technology is fairly basic and quite old," admits Paul Thursfield, a British designer working with Pogo. "We bought most of the electronics from a shop around the corner and soldered it all together. But Pogo realizes what's magical about technology: It releases the children's creativity in a way that so-called multimedia PCs don't." It's brilliant stuff.

The Pogo project is, unfortunately, just a small subplot in an escalating philosophical and strategic battle over the future of consumer electronics. On the one hand, there's Philips and its vision of "ambient intelligence." In this nascent world, technology is everywhere, but invisible. Billions of tiny processors embedded in our furniture, walls, and clothes will communicate wirelessly with one another and manage hundreds of domestic tasks.

There are nifty prototypes of this in Eindhoven. A product called Nebula projects scenery, an alarm clock, and games onto your bedroom ceiling. Using Easy Access, you can find a favorite digital music track by simply humming the tune. Cappellini-designed beds, couches, and chairs have loudspeakers, projectors, and Web screens integrated into headboards and armrests. The bathroom SmartMirror turns out to be a TV. Emile Aarts, scientific program director at Philips Research Labs, says ambient-intelligent homes will be similar to an old English butler: able to make decisions on our behalf.

Given that much of the approximately $3.25 billion that Philips devotes to pure research every year is invested in these prototypes and trials, the company has a lot riding on its ability to invest ambient intelligence with both intellectual and practical credibility. Meanwhile, its nemesis in consumer electronics, Sony, is telling a very different story of the future. The robot freaks at Sony's Digital Creatures Laboratory in Tokyo say technology will become more visible in our homes, not less. Robots will set the table, serve dinner, and take out the garbage.

Sony's latest litter of AIBo's, robot pooches with four legs and six emotional states, can skateboard, dance in time to pop music, and transmit images to PDAs (House-sit, AIBo! Good robot!). They can even sense when their batteries are low and return to charging stations to refuel themselves, and read email to you while you're eating breakfast.