The camera doesn't track anything. The camera doesn't even process anything since they removed the co-processor from the hardware design.
The software is what interprets data being streamed by the camera as individual players shaped and moving like human beings.
The camera itself is nothing more than a pair of relatively low res phone type cameras, an IR emitter for low light conditions and a mic array. It's not an expensive piece of equipment.
As for the idea of four people jumping around and swinging their arms at once while playing Natal; yeah that's a good formula for hilarious injuries to happen. At best, most of the games are going to be for two players unless they're really low key games that have people sitting on the floor or games with only subtle movements involved. Four player dodgeball for example, is probably out.
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