I'm pretty exited about the Natal system actually, I really hope I get to work with it some time. Personally I don't think it will work with games like CoD unless they also release some sort of controller for handling position within the game world. You could use the standard xbox controller...but that wouldn't be a very elegant solution.
I think the real value in Natal will be in a wave of new games that play in very new ways rather than an expansion or new control system for existing genres (with a few obvious exceptions). To be honest I thought it would have happened sooner with Sony's Eye Toy but it never seemed to get off the ground. Or that something like it would have been tried on PC using a web cam as a control system at the very least (might be a fun little side project for the next few weeks), but I've never seen it happen. If anyone knows of an example of where it has been done I'd love to take a look.
I also don't see it costing anywhere near $300, they would just price it out of the market. They need to keep the price at a reasonable level to insure a rapid up take or it will just go the way of the Eye Toy. They also probably bundle it with games like "Milo and Kate", but that depends on weather Lionhead can actually get around to releasing a game on time!