Price and software are key, of course, but I also think that to really take off, MS needs some kind of device you can hold in your hand while you use this.
The wiimote didn't take off by replacing buttons and thumbsticks, it took off by supplementing them. Different input devices are optimal for different activities, and while Natal might be extremely efficient for some kinds of gameplay, it's going to need supplemental inputs (buttons and thumbsticks) to support all kinds of gameplay. A lot of games would be better played with Natal + a wiimote-like device than with Natal alone.
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