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Isn't that a Sony Eyetoy?

Yes, only not totally lame.

Motion capture, such as used by animators, filmmakers and the like is a ways off from being both practical and available at a proper price to capture market share. First, the practicality of setting up a device to do such a thing to play a video game is a little far fetched for most typical players. The Wii has shown that a more simplistic, intuitive means of control can definitely have it's benefits, motion capture isn't simple, at least by today's standards. Noone's going to put on all black clothing, paint their room entirely green, and put a bunch of little balls all over their body.

Secondly, the price to make something similar to that would probably be well over the pricing of current gaming models out there this generation.

Don't get me wrong, the idea of such a thing is pretty awesome, but I think we're a ways off of any sort of real motion capture technology for the home. Eye toy is alright for some gaming concepts, but I think it's a bit more limited in scope than the Wiimote, at least as far as I've seen in Eyetoy games. And even as the Wii has proven, there are gaming genres out there now that will never adapt well to these types of controls, so the need for controller-based control systems will still live on into the future.

For sure, but me and Bill weren't talking about the present or even the immediate future. For this to be practical in the home, motion capture has to evolve beyond the goofy suit and ping pong balls to the point where the camera is capable of discerning your motions just by looking at you. Like in Bill Gates' example, you would pick up an ordinary tennis racket and it would know it was a tennis racket by its appearance. Obviously this isn't something we'll see this generation or the next, but it's not necessarily that far off.

Somebody mentioned it would be lame to control everything with just your body... sure, sometimes it would. But having this technology wouldn't mean you would need to dispose of all the props and control devices altogether. Sometimes you might still use something like a controller or a wiimote, but the point is that these devices would now just augment your experience rather than defining it altogether. When the situation called for it, you could cast them off completely.

The first iteration of this technology could come in a more limited sense. For instance, the Wii 2 might use a camera to detect the position of the remote. It wouldn't be able to see anything else, but it would know the exact position of that remote at all times (something the current Wii doesn't seem capable of doing).

Example? Maybe something like a Jedi game where you directly control the light saber by holding one prop, leaving your other hand open for force maneuvers and your feet available to kick enemies in the face. There are still issues to get around, but they're manageable.