There are many non-technical challenges that Microsoft will have to over come as well ...
There was a fairly large psychological barrier that people had to overcome when Nintendo released the Wii for it to become a successful system. A large portion of Nintendo’s success could probably be attributed to actually keeping their control systems grounded through familiar design. Before a system like NATAL can be successful consumers have to feel comfortable enough with the idea to buy into it, and being that they're focusing on how you don't need a controller, NATAL represents a pretty large psychological jump in how people imagine videogames.
Nintendo also took an image that had been used to put them in a negative light by their competition, made a few tweeks and reframed it in order to market themself successfully to a very broad market. Nintendo took the image they had a family friendly cosole that played "Kiddie" games and changed it to being a company that had an accessable (user friendly) console that played fun games. In contrast, Microsoft's current image is that they have a "Hardcore" (read: geeky) console that plays "Mature" (read:boring) games; there is a pretty large gap to bridge between the image the XBox 360 currently has and one they would need in order to attract the gamers who would (most) be interested in NATAL.
The last issue is the timing of the release ... In hindsight I don't think anyone would argue that CD was not going to be big for future games, but Sega was very foolish for releasing an addon for the Genesis to enable it to play CD games; and I don't think that many people would suggest that the Wiimote would have been successful had Nintendo released it as an addon for the Gamecube in 2005/2006.
