Obviously we can see via the avatar thingy (BAM) that this needs a little more time in the oven, which is why it's coming in 2010, but I do think that A_T has a point, but not really. I'm positive it will get released, but it will be like the HOME Beta where a lot of stuff we saw yesterday is not going to be in there at launch. Virtual Family games probably won't make it, and not Milo if it's really as advanced as it is, since there was a developer from Lionhead pseudo-controlling him while journos tried it out. Paint worked well, as did the crazy ball game with the asian chick. Avatar manipulation will probably happen (but is kinda uselss x_x), and voice and video chat seem easy since MS already has those. I'm kinda skeptical of facial recognition and clothing recognition. I'm sure the camera is capable of that, but I'm not sure the software will be able to take that and make an avatar that looks like you.
So I expect a beta version of the software to be sold with the hardware next year with Paint, the ball game, and the video/voice chat. Everything aside from that seems iffy as the software looks a little chanky as of yesterday.