As someone who had the Eyetoy on PS2, it could be great fun, especially among a group of friends.
However, it was a novelty item, and not a replacement for a real controller, and I think that is where the problem hits. I'm not denying it will be fun to play with, but I can get myself a new 360 for the price of the Kinect.
If it had been like the first Guitar Hero, maybe $20 more than a regular game, and coming with a range of games, then, they'd probably have a hit on their hands. At present it's just too expensive for what it is.
I can't help but think they should have kept working on it, and have it ready for the next gen, when they could have made it cheaper, or even built it into the next console.