Like pointed out before, head tracking is nothing new. The most widespread commercial use I can think of is in compact digital cameras which have had face recognition (essentially the same thing) for quite some time already. And everybody knows (or at least should know) how little computing power those devices have in comparison to any current get console.
I believe that next gen some of the manufacturers is going to implement a sensor bar type of device with two cameras built in, essentially enablin 3D tracking of face/hands/whatever. None of this stuff is new, though currently it's usually done using stereo cameras and color markers. Maybe by next gen the software side of things has progressed far enough to work reliably without any extra markings required.
For an example of a game that is (or at least was, don't know the current situation) under development see http://www.virtualairguitar.com
Reading their page, and the old site, you'll notice that the project where the user interface technology, i.e. hand tracking was developed started 2001 and lasted until 2004, so the tech has certainly been around for years already.
