Everyone keep in mind that the crappy video from E3 that shows it tracking faces of people walking by at E3 clearly (not in the literal sense lol because the quality in the video is weak) shows that it's a high-quality camera.
So far the only thing that's been announced specifically is using it as your in-game avatar (think of replacing your avatar in Halo 2 with a pic of yourself, for example), and of course for the Texas Hold Em free Live Arcade title, supporting 8 players, so you can help tell bluffs and such, and video voice chat, as well as putting your face in the game.
MS will definately have a lot more up their sleeve so I have no worries and that's why I'm stoked.
As far as lewd conduct, MS I'm sure will keep a database of every used picture taken with it on to a Live game and thus if you file a complaint I'm sure they will not only be able to, but will track down that person and see if they did use the camera improperly on that date and take proper action.
Even if it didn't have many features, I'd still buy it. It's still a cooll accessory, and hey, it's rumored to only be $40 with a free game (probably the free Texas Hold Em) and 1 month of Gold (even though most everyone has Live Gold membership).
I will get my $40+ dollars worth out of it as soon as it releases and you can bet your money on it.
Wouldn't it be cool if the PC game coming out "Spore" came to the 360 and we could put our pictures on the creatures we create? How about the Piniatas we make in Viva Piniata? Hilarious.
I can't wait, can't wait. I was really surprised they never came out with such an accessory to counter Sony when Sony did the Eye Toy.