Wasn't head tracking supposed to project the image in 3D also?
Not exactly, but given that the perspective of the image on screen changed with movements of your head it gave a much better illusion of 3D than you normally get on a TV. Our brain inherently knows that TV images aren't 3d because when viewed from the side the image doesn't change.
I'd imagine the Natal would be capable of head-tracking in the same way as the Wii demo but the particular piece of software would have to be programmed to do so and perhaps it just failed to do it as effectively as the Johnny Lee demo. In order for the 3D effect to be apparent he hooked the LED source up to the camera so as he moved the camera it changed the image on screen. If all we have seen so far is images taken from the screen it would not look as effective.