I saw the video yesterday, and I thought it interesting.
I don't want any gameplay that's specifically related to it, but I'm all for anything that increases immersion.
Personally, I think the greatest (and cheapest!) immersion enhancement a console should release would be head-tracking.
IllumiRoom would be highly distracting in my living room for anyone not watching the gameplay - it'd be blaring the lights from the projector onto the faces of the people sitting next to the TV (~6 feet to the left of it) who are reading or using laptops.
A primary concern would be the cost. Suppose you get a high-powered projector down to under $100 (from their current costs of about $500-600), someone was complaining to me recently how expensive real powerpoint project bulbs are. I don't know the actual costs, but they were really careful how long the projector was on for because of the bulb cost. This was an overhead power-point projector in a church, so maybe it's a higher end one, but considering IllumiRoom needs to project enough light to visibly change the appearance of the room you're in, and isn't being projected onto a guaranteed neutral-colored background, it probably needs an intense bulb.
According to PC Mag, they used this projector for the proof-of-concept.
- Projector cost: $719.99
- Replacement bulb: >$180 (2,500 - 4,000 hours - it'd need to be replaced every two years, I'd guess)
- A separate Kinect (facing the TV instead of the player): $230
Now they can trim out the parts of the Kinect and the projector that they don't need... but even squeezing all they can out of it, I don't see this being any less than $175 in the next 4 years (with $50 replacement bulb every two years), as an add-on accessory (similar to how the Kinect was an add-on to the XBox 360). Remembering also that they have to have a computer chip (~10$) in the device to processor the camera input to mask out the projection, and a wifi chip to stream game visuals to the device, I don't see how it could get much cheaper than that.
Cost of headtracking? Well, it could probably be done already with the existing Kinect, and if it can't, it'd only cost a <$15 dollar pair of glasses (with no lense needed) or headband to enable the existing Kinect to headtrack accurately (skip to herefor the result)... and it'll improve immersion more than the projections would, in my opinion.
Another concern would be that games either will have generic IllumiRoom projections... or else have to have support coded in. For support coded in, they likely won't want to waste too much processing power displaying thousands of polygons that are only in the player's peripheral.
As far as your coffee table concern goes (and even if people have coffee tables, they don't want a 15" x 12" x 6" projector taking up the space), I'm sure they'd offer a ceiling mount possibility - even if it's a third party accessory. Existing projectors already are frequently ceiling mounted (to go over people's heads).
But, if the real concern about the cost can be addressed (which historically always gets addressed given enough time), I'm in favor of increased immersion - and I feel like this is definitely something that would increase immersion greatly.