I bought a Kinect, and overall I'd say that yes, it does work.
However, it has some (potentially) strict requirements in order for it to work optimally. You need to stand at least 6 feet away from the sensor, ideally more like 8-10 feet. For two players, 8 feet is the minimum. If you are too close to it, it doesn't work really well at all. Some games might need more room than others, though (I've heard that Your Shape wants you to stand at least 8 feet back, with room behind you in addition, but I haven't played it yet).
The movement in-game does mimic your movements, but there is a very slight lag, and it doesn't always get what you're doing correctly (although it is right most of the time).
Overall, I'm happy with my purchase. I did have to rearrange my gaming setup for it a bit so that I had more room to maneuver, but when set up properly it works really well. If you don't have room for it (or can't make room), then I'd suggest holding off on it. the Kinect Support site has some information on how to set it up, so that might help you determine if it would work for you or not.