I became fascinated by the Xbox 360 Kinect system long before it hit the stores—back when Microsoft was still developing it under the name Project Natal. The commercial product hasn't yet delivered on the full promise of this demo, but I expect that it will, and fairly soon. Kinect is already the fastest-selling consumer electronics device of all time.
It's not just virtual volleyball and dancing, either. Hackers started "improving" and fiddling around with Kinect almost from the beginning. Here's a cool Kinect interaction with Microsoft's Worldwide Telescope: