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Well I doubt it'll be reading real life objects and creating in-game items from it (or doing the other claims in that initial trailer), but based on the live demos that Microsoft were eager to present and the fact that they got a year of R&D after that - it should work.
I'd say the question is how the software holds up, and how traditional games will integrate Natal (or 'Wave' rather). I reckon word of mouth will be important as always, let the early adopters be our space monkeys.
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