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<— I was "Jon from Texas"
What the hey? He didn't answer the question!
There's an inherent flaw with Natal where you don't have free-lateral-movement controls. The other four degrees-of-freedom for the camera (yaw, pitch, roll, slide) can all be handled by tilting your head, jumping, crouching, and leaning your body, but the lateral movement controls don't have an obvious binding available.
Remember the godzilla game in the Natal promo? The player started the scene at the couch, took a few steps forward to move the godzilla character forward, and ended the scene in the middle of the room.
See the problem? If the player were to keep moving the character forward, he'd run into the TV. It's not that you'd need a large gaming space, it's that you need an infinite gaming space.
The two obvious "controller-less" options for move/strafe are a DDR-pad D-pad (essentially like in the Natal Burnout demo) or mid-air hand positions. Neither of these sound very appealing, do they...
The most natural controller-based solution I personally see is to have a nunchuck equivalent. The joystick would handle the lateral movement controls, and you wouldn't have to ever "run in place".
^I would of mentioned all this as part of the question, but it was already a bit long as-is, and honestly, I thought he might of already considered a nunchuck equivalent.