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I was watching the engadget.com video of Kinect annd notice at the end of the demo it showed what the camera really sees. I noticed when tracking 2 players , one  was green on the screen the other red, that if one player hand (red) on the camera comes across other (green) there is some confussion of where one player hand ends and another player body begins.( the camera  could see other images in the background just  wasn't tracking them.) So there does seems to be hardware limitations as well. Since Kinect runs on USB then it's  camera will be limited close to SD resolution. Kinect would more likely have trouble tracking 4 players unless you can space out enough so the images doesn't cross over each other.