I won't call it an epic fail or anything, but its not going to bring new people to the system. The 360 library, much like the PS3 library, is targeted for the "M Gamer" audience. MS is trying to draw in the casual gamer crowd, which are heavily family oriented. The system does not support a good library for this audience.
Basically think of it this way - The 360 Avatars were MS' answer to Nintendo's Mii characters. It didnt drag people over from the Wii, even though they tried to give a casual feel to their system. What it did provide is current 360 owners with a comparable experience that Wii owners had.
Natal will work the same way - it won't lure in a new audience, but it will provide 360 owners with motion control systems comparable if not better than the Wii. Despite its success with existing 360 owners, Natal will not shed the typecast the 360 had intentionally carved for itself - a core gamer's console. Nothing MS can do at this point will really convince people that it's a family-friendly system. It's impossible to pull off a hairpin turn in an aircraft carrier.
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