Project Natal is the vision to interact with video-games without a controller. Cameras are used to captures movement, recognize people etc. Basically an EyeToy version 2.0. This is a very ambitious project for the XBox 360, but in my opinion its possible.
However there is this Milo-demo, where the game character recognizes emotions, remembers stuff and interacts very naturally. In my opinion this is clearly a nice demo, but won’t work in reality. Because having such a precise recognition is an extremely difficult task. But there’s also the AI part. An ‘game’-AI can feel quite natural at first sight. But it certainly fell unnatural as soon as you interact heavily with it.