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Why did MS make it like playing inside a virtual room?

Why couldnt they have made it sitting ontop of a cloud with a screen just handing there, or sitting under-water in some castle deep down there with fish swimming around as well? how about sitting on the moon? at at the very least some gigantic theature? so many cool room designs they could have done.

Same lame principle, but much much cooler than this demo was.

 

*edit:

My hope is MS figours out a way to not just make a game run "flat" inside a virtual space, but actually end up doing real vr on the xbox.

But if this is the limits of whats possible, atleast they should dress it up abit. Make some more fun environments to play in, that are silly fantastical creations so far out of the ordinary that it makes it fun to experiance.