As a YMCA swim coach, and console gamer, I have to say that although the intentions are great, this work/reward model of incentives has some potential negative effects.
1) You're reinforcing the exercise as work or onerous activity.
2) Studies have shown rewards as motivators have unintended effects:
http://www.gnu.org/philosophy/motivation.html
Granted, we all still do it... even I have fallen for that trap coaching my youth team.
By far, the most effective -- and hardest way to motivate people is to:
* Set an example
* Design the activity around the participants.
* Be creative/flexible so that activities don't become boring.
I've done everything from incorporating ideas from the kids on what the next workout set should be to switching between a set/rote practice and games that still allow them to develop skills or conditioning.
Anyway, that's why I think the Wii fit, Wave, Move interfaces are cool, in my opinion. They allow one to incorporate physical activity with gaming. IMHO, much more engaging than sitting on a stationary bike with a Ninty DS in hand!