Wow, some xbox fans really going to town on the ratings.
This is an interesting concept. I would question the need for the brightly uniformly colored jump suits though and the taped out box on the floor. I understand its still a WIP and this is the first real demo I've seen.
This is still a gimmick accessory for most current and popular Xbox 360 games. For a no controller setup to be practical for FPSs and RPGs you need to be able to turn. If you turn in real life, guess what? No more screen in front of you to see what you're doing. Someone above suggested VR helmet, then the problem comes when you turn a 180 and the camera can't see what your hands are doing when they're in front of you (holding a gun, wand, waving widely to fend off Larry Simmons, etc.)
This will make a great accessory for those highly reviewed games like Petz, Barbies Little Pony, etc. where you generally select something, then use an analog stick to swing the object about something that doesn't move ie maintains a set perspective.
The only popular game market I can REALLY see this getting any kind of good and popular game, is Sports games. Right now Football, Baseball, Bowling, etc. games have a set perspective and some key combo needs to be entered to execute whats in front of you correctly (usually involving the movement of the player while you keep the same set perspective.) Unfortunately, in most sports the actions involve holding something so that you don't injure yourself (try throwing a ball really hard and fast, without the ball).
I'm looking forward to being proved wrong by the developers, but not setting my hopes on it.