Thanks to my friend and the Royal Malaysian Navy for letting me use these photos. My friend was invited onto the Malaysian Navy base and got a chance to not only photograph this rare gun but also shoot it.
The gun is the elusive XM8 Compact. It is based on the XM8 which was based on the G36 system. The XM8 was originally designed for the OICW program to replace the Army’s M-16s. The program never went anywhere and so the XM8s went to the Malaysian Naval Special Forces. As part of that group of guns, the Navy also received one of a few XM8 PDW prototypes.
Below you can see the XM8 PDW vs an H&K MP7 and a Bushmaster XM-15.
Contrary to video games and Wikipedia, The XM8 Compact has a collapsing stock.
Here is a video of my friend shooting the XM8 Compact. He claims that he was hitting 300 meter targets with it.
I suspect H&K may have an XM8 Compact but I have not confirmed with them if they do.