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XAudio 2 is a low-level audio application programming interface (API) that evolved from the XAudio API used with the original Xbox console from Microsoft for handling audio tasks. Whereas XAudio was an API used solely with the Xbox platform, XAudio 2 has been developed cross-platform (Microsoft Windows and Xbox 360) and Microsoft is encouraging more developers to create applications utilizing XAudio 2.
It is intended to eventually replace the DirectSound API. XAudio 2 made its way into the RTM version of the March 2008 DirectX SDK. Platforms that support XAudio 2 to date include Windows XP, Windows Vista (possible WIndows 7 too) and the Xbox 360 gaming console.
The Cross-platform Audio Creation Tool (XACT) is part of the DirectX SDK now, and is a high-level audio library for authoring/playing audio that is written to use Xaudio 2 on the Xbox platforms or in Microsoft Windows XP and Vista.
XAudio 2 emphasizes high-level audio APIs such as XACT can enable tasks such as separating sound data from voice data, programmable voices, effects processing and sample rate conversions. It has native compressed data support for XMA (used with Xbox 360 console), ADPCM and xWMA.
Other DirectX related glossary:
DirectX Media Objects