Why does Natal need to have an FPS game?  Or why do you need to use only Natal with an FPS game? 

And what is the issue with a dodgeball game?  I happen to think it would be friggen awesome.

World Championship Dodgeball

General Gameplay

Players will be able to control their onscreen counterpart via a complete 1:1 mapping of their environment and body to the games body and environment.  If the player moves forward and to the left 3 feet, the character onscreen moves forward and to the left 3 feet.  If the play jumps to the right, the character jumps to the right.  Natal supports an area of 20X20 if I recall, so that gives plenty of room for maneuvering.  This will not be a game for people with tiny living spaces.

Games will have the standard dodgeball rules.  Teams throw balls at the other teams in an attempt to hit them.  Once hit a player is out.  A player can be brought back into the game if a team member catches a ball thrown at him/her.  After all players on a team are hit, a point is awarded to the winning team.  After a configurable amount of points are earned, the game is won.  Balls must be caught with both hands, but can be thrown with one.  Only one ball at a time can be held.  Balls can be deflected using a ball that is currently being held.

It is called World Championship Dodgeball because, using Live's infrastructure, world championship tournaments can be held on a monthly basis.  Players compete in ranked matches with other players from their country in an attempt to make it onto their country's team.  Once the teams have been determined a tournament takes place on a specified and day of the month at a rotating time frame(so as to not always give the time advantage to one country).  Earlier matches in the tournament can be configured to have less play time so as to speed the tournament up.  Once the final matches are reached, the play time can be lengthened so as to make a more skill based game.

Any match during the tournament can be viewed by spectators.  Possibly showing their avatars in the stands, much like they do with 1 vs 100.  Perhaps avatar trophies or MS points can be awarded to the winning teams.

Configurable Gameplay

Environment options

The environment can be configured to change as the match rolls on in an attempt to speed it along.  Hazards will appear, such as holes in the floor, lava rivers(depending on the stage), low walls to force jumpming or high stepping, etc.  Perhaps the outer foot of the space keeps getting removed every 30 seconds or so to give the player less room to maneuver and dodge.

Power Ups

Power ups can either be thrown at or walk over to pick up.  They will be located on the players court and in the air between the two teams.  It will be risky to go try nd pick up a powerup because the opposing team will most likely be ready for you to attempt to get them and have a ball waiting for you when you get there.  Throwing a ball to get a power up can be risky as well since you could have attempted to get the other team out with it, or they could catch it more easily.

Shield - Can be activated on voice command.  Provides a 1 second invulnerability.

Fast ball - Ball thrown speeds are increased.

Fire ball - Cannot be caught, must be dodged.

Team mate revival - This will allow one of your team mates to rejoin the match.

Slow down - Ball for the other team are slowed down.

Environment change - This will cause something to happen to the other team's playing field.

There could be many more powerups to offer.

Stages

Stages can get really crazy.  A playing field could consist of only small ledges that must be stepped or jumped onto carefully.  Dodging balls at the same time as this could get quite interesting.  There would be the inevitable beach stage, lava stage, water stage, desert stage, space stage, forest stage, etc.  All offering different environmental hazards and power up sets.

With the big difference being that Sony's Wand is a peripheral with buttons that could be used to move the player in the game

Also Natal is not able to scan finger moves and that may be a "nice" problem to solve for this device

I disagree.  I see these recent threads as evidence that people are still very interested or curious about it, and that's nothing but good for MS.

What we need to be right now is something that we always have a hard time with:  patient.  Its not coming any time soon so MS will let the hype machine kick in when the timing is right.  Expect more info in Feb and March but probably not before.

Are you sure because I recall reading it can read hand gestures.  I think you would have to raise your hand to the camera mind to do this.