I've said this elsewhere, but I've always envisioned Project Natal as the Nintendo Revolution without having to buy a whole new console.
In that sense, its MS expanding their audience beyond the hardcore. I don't see that as so much a sign of desperation but more as an evolution of the later stages of a console gen. With even the current combined install base of the PS3 and 360 (just under 70 mil), how much more core gamers are out there to keep this gen going with its current approach?