My idea was the only way I could figure out how to do a FPS without any additional controllers.
Ian you are right. There are certain things games need. Even Nintendo understood this releasing the Nintendo DS. At first they wanted a system with NO buttons and D-Pad...and they realized it was really a poor idea for gaming. Which is why no matter how good the Ipod touch is...it will always be a second rate gaming machine, because the touch screen is not a good source for more complicated controls and advanced games.
Microsoft looked at the market and saw casuals playing. They wanted to capture that market, and actually looked at the same data Nintendo did. People get confounded by the controller...and want something more simple. Nintendo delivered with the Wii. The basic Wii Remote is very simple, but even the Nunchuk is easy to understand. Microsoft decided a No button approach might be even better...and then they were not blatantly copying Nintendo; which was important to them, because they needed their product to stand out from Nintendo's Wii and the PS Move which Microsoft could predict would be coming. Three similar motion controlled systems could not have been supported by consumers in the market...and Nintendo already had the lead.
Unfortunately, everything Microsoft is doing is just poorly designed. The technology just isn't there, and also it sounds cool and is probably cool to demo, a full rich experience just doesn't sound feasible. Though perhaps that will be figured out in the future...I mean Microsoft probably has another year or 2 with the Xbox 360 to try and make Kinect work.