The feeling of lag goes away over time as your movements tune themselves to the positive feedback loop. At least it did with me. It's the same with a normal controller, there can be upwards of 150ms of lag with a standard controller (Resistance: FoM I believe is up there), and yet we still manage to compensate after a while. It's especially noticeable on timing based games like Limbo, until your brain uses the feedback loop to recalibrate your fingers
How much is Kinect lagging exactly ? more than 150ms ? Does the lag cascade ? i.e., worse for larger movement. Has anyone measured a Kinect gesture lag ? (e.g., pressing a virtual button mid-air to activate Nitro in a racing game)
In a "buttons" game, it's usually just a small, constant "trigger" lag. Do you have a link to the RFOM lag ?
In both cases, the game will be designed differently to accommodate the acceptable range of user response. It's really up to the users to see if they like the resulting games.
EDIT:
Yes, and many interviews (such as
the Edge one previously posted) mention this. Basically, it comes down exaggerating the feedback visuals/audio significantly.
What's interesting to me is how a lot of companies are becoming very scientific about human behavior and responses in these games.
Pretty much all the interviews in edge mentioned this to varying levels.
The rumble-less SIXAXIS has the same problem. PS3 launch games relied on AV feedback. I liked it because there was no abrupt vibration messing up my aiming. After I switched to DS3... if the rumble is too wild, I would activate R3 accidentally (trying to hold down my reticule) and die mid-battle.
Most rumble implementations I tried are not so helpful, with a few exceptions... like Demon's Souls excellent Skeleton Warrior implementation. It felt like fighting a rock-hard enemy when I hit one. Their counter-blows were equally devastating. Unfortunately, such attention to details is usually lacking.
The real missing element may be control and continual feedback. (e.g. a pressure sensitive button and resulting feedback -- like holding on to my teammate/AI buddy, preventing him from falling off a cliff), not merely random rumble due to taking hits. In the latter case, it's helpful when you're distracted by external or other in-game elements. In the former case, it can be used to implement gameplay mechanics.
The other thing is "floaty arms". This does not come into play with large movement games such as dancing, jumping, etc. But for fine-grained control, sometimes I find that it's better to add artificial weight to my hands while I do controller-free gaming. It feels more connected. It can be easily done by holding on to something, or just use another hand to support the "floaty" controlling hand (to prevent it from shaking too much

). In all of these cases, it can still be fun to play. And that's all that matters.