From what I understand the tools to implement the tessellation just weren't there so the cost/benefit of going it alone really didn't make it worthwhile for most Xbox 360 games to implement the feature. The Xbox 360 GPU uses a combination of Direct X 9, 10 and 11 features as well as a few unique tricks so its a unique case.
I can't say when and where it makes sense to use it and when and where it doesn't because its something which hasn't really had enough use and we haven't seen enough real world examples of it in action. But from what I understand the best useage of the feature are in rendering terrain and rendering certain uniform models like for example cars in Forza 3 and during cutscenes where the developer has control over the camera.
The tessellation feature in the Xbox 360 is more akin to the tessellation feature currently implemented in ATI cards (2900XT up) and tessellation is in direct X 11 is based off the ATI lineage of tessellation. Its just very much a basic implementation. We will really have to see what happens in 2010 onwards to find out what it can really do.
Tease.
