So here is some details:
http://www.pcworld.com/article/211299/microsoft_flipflops_on_kinect_computer_hack.html
"What has happened," continued Kipman, "is someone wrote an open source driver for PCs that essentially opens the USB connection, which we didn't protect by design, and reads the inputs from the sensor. The sensor, again as I talked earlier, has eyes and ears, and that's a whole bunch of noise that someone needs to take and turn into signal."
http://nexus404.com/Blog/2010/11/08/microsoft-kinect-hack-to-bring-windows-7-pc-motion-control-gaming-not-quite-the-kinect-has-been-hacked-to-run-with-windows-7-pcs-long-live-the-kinect/
...and a video of Minecraft on Kinect:
http://www.crunchgear.com/2011/01/24/kinect-minecraft-full-motion-3d-statues/
So while Kinect won't happen on the 360, for a PC though it is just a matter of someone getting around to doing it.
So what's possible? Face generation? Gameplay? Putting real objects into the Creation Kit for use in mods? ...oh that could open up modding so much.