There seems to be a lot of confusion over just exactly what the Milo demonstration was.
As far as I know, there isn't, nor was there ever a game titled "Milo" in the works. It was a demonstration to show how players could potentially interact with in-game characters through Natal in the future.
Maybe it's just me, but I don't particularly see the entertainment value in a game based on talking to and interacting with a 5 year old boy.
But, with little stretch of the imagination, if it actually works as hyped, players could potentially see things like the "awesome" text wheel in Mass Effect (or any RPG) replaced by actual direct character interaction in first person perspective.
Adventure games in general requiring a lot of NPC interaction could benefit greatly from Natal. Again; assuming it works as hyped. Unfortunately, there would still be a lot of issues since you can't very well design a game with characters that accurately and realistically respond to ANYTHING a player could potentially say for obvious reasons.
On the other hand, if they are actually developing a game called Milo, based upon developing an in-game relationship with a 5 year old boy, I think I'll pass.