Engadget has posted a video demonstration from NextGen-News showing how Project Natal actually views people interacting with it. One interesting thing about the video is the gender recognition. Natal is able to recognize if you're a male or female using facial recognition (or by how tight your pants are [SarcMark]). The video also shows off the system's ability to independently track two different people at the same time.
It was also noted, by someone in the audience, that the lag issues which were seen in earlier demos were pretty much gone. Lag was a major concern, especially when dealing with games that require near-instant reaction to commands (such as first person shooters). Gamers should be happy to see Microsoft taking the issue seriously. Natal is still expected to be released at the end of this year. To see the demo, check out the video below.